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BOOKS   ON  ECONOMICS 

I'.V 

FRANCIS   A.    WALKER 

Late  President  Massachusetts  Institute  of  Technology 


PUBLISHED  BY  HENRY  HOLT  &>   CO. 
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AMERlCAy  SCIENCE  SERIES— ELEMENTARY  COURSE 


FIRST   LESSONS 


m 


POLITICAL  ECONOMY 


BT 


FEANCIS  A.  WALKEE,  Ph.D.,   LL.D. 

President  Massachusetts  Institute  of  Technology 

AcTHOR  OF  "The  Waoes  Question,"  " Money." 

"Land  and  itsRent."  Eia 


NEW  YORK 
HENKY    HOLT    ANJJ    COMPANY 

1893 


Oopyriprht,  1»8S. 

BY 

Henry  Holt  &  Co. 


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CO 


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^ 


PREFACE. 


This  book  lias  been  prepared  for  use  in  Higli  Schools  and 
Academies.  In  writing  its  pages,  I  liave  been  well  aware 
tliat  the  object  sought  is  the  most  difficult  at  which  an 
economist  can  aim.  Whether  this  effort  to  reach  the 
minds  of  pupils  of  fifteen,  sixteen  or  seventeen  years  has 
been  successful,  will  only  be  learned  on  actual  trial. 

In  preparing  a  text-book  for  students  in  the  period  of 
life  indicated,  I  have  not  thought  it  necessary  to  make  the 
work  childish.  It  is  no  "Primer  of  Political  Economy" 
which  is  here  offered  ;  but  a  substantial  course  of  study  in 
this  vitally  important  subject.  I  can  only  hope  that  it 
will  be  found  that  those  for  whom  it  has  been  designed 
will  be  able  to  follow  that  course  to  their  own  satisfaction 
and  with  good  results. 

In  adapting  the  tone  of  discussion  to  younger  readers 
than  those  for  whom  I  have  heretofore  written,  it  has  not 
seemed  to  me  desirable  to  avoid  words  as  long  as  are 
necessary  fully  to  carry  the  meaning  intended.  In  a  trea- 
tise on  political  economy  written  in  "  words  of  two  sylla- 
bles," the  author  must  avoid  questions  of  prime  impor- 
tance, or  else  he  will  be  driven  to  roundabout  forms  of  ex- 
pression and  to  highly  artificial  phrases.  It  is  not  the 
length  of  words,  but  obscurity  or  confusion  in  the  mind 
of  the  writer,  which  will  make  a  treatise  on  political  economy 
difficult  to  youthful  readers. 

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3: 
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iv  PREFACE. 

What  has  been  attempted  in  the  preparation  of  this  little 
work  is  a  clear  arrangement  of  topics  ;  a  simple,  direct 
and  forcible  presentation  of  the  questions  successively 
raised  ;  the  avoidance,  as  far  as  possible,  of  certain  meta- 
physical distinctions  wiiich  the  author  has  found  very  per- 
])lexing  to  students  of  even  a  greater  age  ;  a  frequent  repe- 
tition of  cardinal  doctrines  ;  and,  especially,  a  liberal  use  of 
concrete  illustrations,  drawn  from  facts  of  common  experi- 
ence or  observation.  How  fai-  this  attempt  has  been  suc- 
cessful is  now  to  be  submitted  to  the  judgment  of  others, 
and  to  the  tests  of  the  school-r<K)ni. 

For  one,  I  am  fully  persuaded  that  it  is  as  easy  to  teach 
political  economy  to  students  of  fifteen,  sixteen  or  seven- 
teen years  of  age,  as  it  is  to  teach  geometry  or  quadratic 
equations,  which  are  actually  taught,  and  with  complete 
success,  within  that  period  of  life.  But  this  can  only  be 
done  by  the  master  taking  as  much  pains  with  his  classes 
as  he  would  take  in  teaching  the  latter  subjects.  There  is 
not  one  scholar  in  five,  perhaps  in  ten,  who  would  go  satis- 
factorily through  geouKitry  or  quadratic  equations  by 
himself,  using  simply  the  text-book.  The  great  majority 
of  pupils  require  the  active  assistance  of  the  teacher,  at 
every  stage  of  their  progress.  The  master  must  continu- 
ally search  the  minds  of  his  pupils  to  see  what  they  have 
apprehended,  and  what  they  have  failed  to  appreiiend. 
He  must  go  back  to  fundamental  pi'inciples  just  as  often 
as  he  finds  it  necessary  in  order  to  fix  these  firmly  in  the 
mind.  He  must  do  more,  much  more,  than  hear  recitations  : 
he  must  positively  and  actively  teach,  if  his  scholars  are 
to  learn.  He  must  illustrate,  emphasize  and  enforce  every 
successive  lesson. 

If  political  economy  is  to  be  taken  up  in  such  a  spirit, 
in  schools  of  the  grade  to  which  reference  has  been  made, 
it  can  be  successfully  taught  out  of  such  a  book  as  this  was 


PBBFACS:.  V 

intended  to  be.  Take,  for  example,  the  principle  set  forth 
in  Chapter  X,  and  made  of  such  extensive  use  in  later 
chapters :  the  principle  that  normal  value  is  determined  by 
the  cost  of  production  "at  the  greatest  disadvantage/'  One 
who  has  mastered  this  has  already  learned  the  harder  half 
of  political  economy.  Yet  there  is  nothing  in  it  which  can- 
not be  made  perfectly  clear,  by  proper  explanation,  due 
iteration,  free  illustration,  to  the  mind  of  a  boy  of  sixteen, 
or,  for  that  matter,  of  fourteen.  A  class  might,  however, 
get  through  that  chapter,  for  the  purposes  of  a  routine  reci- 
tation, under  a  master  who  was  not  himself  interested  in 
the  subject,  without  thoroughly  grasping  the  principle  and 
giving  it  such  a  place  in  their  minds  as  would  enable  them 
to  use  it  in  subsequent  discussions  regarding  the  distribu- 
tion of  wealth. 

Another  thing  requires  to  be  noted  regarding  the  plan 
of  the  present  work.  Inasmuch  as  it  is  intended  for  youth- 
ful students,  and  is  designed  quite  as  much  to  interest 
them  in  the  study  of  political  economy  as  to  make  them 
proficient  in  it,  the  author  has  not  held  himself,  as  strictly 
as  he  has  sought  in  previous  works  to  do,  to  the  treatment 
of  political  economy  as  a  science,  to  be  distinguished  from 
the  art  of  political  economy.  He  has  allowed  himself  great 
freedom  in  assuming  that  certain  results  are  desirable  in 
themselves,  and  certain  other  results  undesirable :  and  he 
has  sought  to  show  how  these  may  be  avoided  and  those 
attained.  Much,  which,  in  his  other  works,  has  been 
treated  as  belonging  to  the  Applications  of  political  econo- 
my, is  wrought  into  the  substance  of  the  present  treatise. 

It  scarcely  requires  to  be  said  that  any  one  who  should 
undertake  to  teach  political  economy,  with  the  aid  of  this 
or  any  other  work  of  an  elementary  character,  should  pre- 
pare himself  for  the  task  by  studying  more  advanced  text- 
books.    In  tins  connection  the  present  writer  would  recom- 


VI  PREFACE. 

mend  John  Stuart  Mill's  Political  Economy,  and  Marshall's 
brief  but  excellent  Economics  of  Industry.  He  trusts  he 
will  not  be  deemed  egotistical  if  he  mentions  his  own  fuller 
treatise  on  political  economy,  and,  also,  his  Wages  Question. 

The  teacher  would  be  greatly  assisted  in  preparing  him- 
self, both  generally  and  for  individual  recitations,  by  using 
Problems  in  Political  Economy,  by  Prof.  W.  G.  Sumner  of 
Yale  University;  Institutes  of  Economics,  by  President  E. 
B.  Andrews  of  Brown  University;  and  Outline  of  Lectures 
upon  Political  Economy,  by  Prof.  Henry  C.  Adams  of  the 
University  of  Michigan. 

The  habitual  reading  of  the  Quarterly  Journal  of  Econo- 
mics (Harvard  University)  is  strongly  recommended.  The 
publications  of  the  American  Economic  Association  will  be 
found  highly  useful. 

While  the  chapters  of  this  work  are  intended  to  be 
studied  in  the  order  in  which  they  appear,  some  teachers 
may  find  it  better  to  omit  paragraphs  106  to  146,  inclusive, 
on  first  passing  through  the  book,  reserving  those  sections 
for  subsequent  study. 

Massachusetts  Institute  of  Technology, 
Boston,  October  14,  1889. 


TABLE  OF  CONTENTS. 


PART  I. 


PRODUCTION  AND  EXCHANGE. 

CHAPTER  PAGE 

I.  Wealth  and  Value, 3 

II.  The  Cause  of  Value, 12 

III.  The  Production  of  Wealth, 17 

IV.  Land, 22 

V.  Diminishing  Returns  in  Agriculture,     ....  25 

VI.  L.ABOR 34 

VII.  Labor,  Continued.      The   Organization  of  In- 
dustry  ; 50 

VIII.  Capital, 60 

IX.  The  Relation  of  Cost  of  Production  to  Value,  72 

X.  Production  at  the  Greatest  Disadvantage,  .     .  85 

XL  Money, 95 

XII.  Primiti\^  Forms  of  Money, 103 

XIII.  Credit  :   The  Standard  of  Deferred  Payments  : 

The  Tabular  Standard  :  Bimetallism,    .     .     .  109 

XIV.  Banks  and  Bank-money, 122 

XV.  Political  Money  :  Inflation, 143 

XVI.  Protection  or  Free  Trade, 164 


PART  II. 

DISTRIBUTION  AND  CONSUMPTION. 

XVII.  The  Problem  of  Distribution 181 

XVIIl.  Rent, 189 

XIX.  Kent,  Continued.     The  Ownership  of  Land,  .     .  205 

Trii 


viil  TABLE  OF  COI^iJilNTS. 

CHAPTER  PAGE 

XX.  Profits, 215 

XXI.  PuoFiTS,  Continued.    Co-operation 225 

XXII.  Interest 237 

XXIII.  Wages 251 

XXIV.  The  Economic  Effects  of  Imperfect  Competi- 

tion,     261 

XXV.  What  May   be    Done    to    Help    the    Working 

Classes 272 

XXVI.  The  Pauper  Labor  Argument  for  Protection,    .  283 

XXVII.  The  Consumption  of  Wealth 291 

XXVIII.  False  Notions  about  Consumption, 301 


PART  I. 

PRODUCTION  AND  EXOHANOE. 


POLITICAL    ECONOMY. 


CHAPTER  I. 

WEALTH  AKD  VALUE. 

1.  Political  Economy  is  the  Science  of  Wealth. — Political 
economy,  or  economics^  is  the  science  of  wealth. 

Political  economy  has  to  do  with  nothing  but  wealth. 
This  warning  should  be  carefully  heeded.  A  great  part  of 
the  confusion  which  has  existed  on  this  subject  has  arisen 
from  the  fact  that  many  writers  on  political  economy  have 
allowed  their  attention  to  be  diverted,  here  or  there,  now 
or  then,  to  some  other  social  object  besides  wealth,  and 
have  perplexed  themselves  and  misled  their  readers  by  dis- 
cussing questions  which  do  not  belong  to  them,  as  political 
economists. 

When  we  say  that  the  political  economist,  as  such,  has 
to  do  with  nothing  else  besides  wealth,  we  are  not  saying 
that  wealth  is  the  most  important  matter  in  the  world.  We 
simply  say  that,  if  wealth  is  important  enough  to  be  inves- 
tigated, it  should  be  investigated  by  itself.  The  best  and 
surest  way  by  which  to  increase  our  knowledge  of  any  sub- 
ject, is  to  isolate  it  and  study  it  long  and  carefully,  by  itself, 
from  all  sides.  This  is  just  as  true  of  a  social  problem  as 
of  a  chemical  problem.  The  great  difference  between  the 
two  cases  is  that  in  the  social  problem  it  is  not  possible  to 

8 


4  POLITICAL  ECONOMY. 

keep  out  all  foreign  elements.  Hence  we  can  never  expect 
to  reach  the  same  degree  of  assurance  in  political  economy 
as  in  chemistry.  But  that  constitutes  no  reason  at  all  for 
not  excluding  foreign  elements  so  far  as  we  can,  and  keep- 
ing the  thing  we  are  studying,  namely,  wealth,  as  closely 
in  view,  all  the  time,  as  the  nature  of  the  case  will  permit. 

2.  Relation  of  Value  to  Wealth. — I  have  said  that  politi- 
cal economy  is  the  science  of  wealth.  But  what  is  wealth  ? 
I  answer.  Wealth  comprises  all  articles  of  value  and  nothing 
else.  Everything  which  has  value  is  wealth.  Nothing  is 
wealth  which  has  not  value.  In  the  language  of  tlie  phi- 
losophers: Wealth  is  the  substance,  of  which  value  is  the 
attribute :  that  is,  we  always  and  everywhere  attribute 
value  to  the  substance,  wealth. 

If  wealth  and  value  are  thus  indissolubly  joined  together, 
the  reader  may  ask.  Why,  when,  should  we  not  call  political 
economy  the  science  of  values  ?  I  answer.  It  would  be  per- 
fectly proper  to  do  so.  Some  writers  have  done  so.  One 
reason,  however,  for  calling  political  economy  the  science 
of  wealth,  is  that  many  persons  who  would  not  be  in  the 
least  interested  on  being  asked  to  listen  to  a  lecture,  or  read' 
a  book,  on  the  science  of  values,  would  be  very  much  inter- 
ested on  being  told  that  the  subject  was  the  science  of 
wealth.  Wealth  is  a  word  which  appeals  to  all,  poor  or 
rich,  low  or  high,  ignorant  or  educated.  No  one  is  above, 
no  one  is  below,  an  interest  in  this  subject.  It  is,  therefoie, 
a  good  term  to  use  in  describing  political  economy. 

3.  Value  Defined. — But  what  is  value  ?  This  is  a  ques- 
tion which  needs  to  be  carefully  answered;  and  the  reader 
should  always  keep  the  definition  clearly  in  view.  It  will 
not  do  to  think  loosely  about  value. 

In  common  speech  we  use  the  word  in  more  than  one 
sense.  Thus,  we  might  say  that  the  value  of  a  horse  is  one 
hundred  dollars,  or  that  a  certain  book  contains  some  valu- 


POLITICAL  ECONOMY.  5 

able  truths.   In  political  economy,  however,  the  word  should 
always  mean  precisely  one  thing,  and  nothing  else. 

The  definition  which  I  have  to  give  is  a  long  one,  and  I 
must  ask  the  reader  to  commit  it  carefully  to  memory. 
There  are  few  things  which  it  is  worth  while  to  commit  to 
memory,  word  for  word;  but  this  is  one  of  them: 

Value  is  the  powee  which  an  article  confers 
upon  its  possessor,  irrespective  of  legal  authority 
or  personal  sentiments,  of  commanding,  in  ex- 
change for  itself,  the  labor.  or  the  products  of 
the  labor.  of  others. 

It  is  proper,  speaking  briefly,  to  say  that  value  is  Power 
in  Exchange;  but  wlienever  we  say  this,  we  must  have  in 
mind  all  that  is  stated  above. 

4.  Two  Exceptions. — What  do  we  mean  by  saying,  '*  ir- 
respective of  legal  authority  or  personal  sentiments"?  This 
will  be  best  shown  by  illustrations,  as  follows: 

The  Emperor  of  Russia  or  of  Germany  can,  by  a  few 
words,  compel  two  millions  of  men  to  come  from  all  parts 
of  his  empire,  to  serve  in  his  army  He  can  command  them 
to  make  the  greatest  exertions,  to  submit  to  the  most  pain- 
ful sacrifices,  involving  hunger  and  fatigue,  and  even 
wounds  and  death.  At  his  will,  they  must  march,  watch, 
fight,  or  die.  Political  economy  has  nothing  to  do  with 
this,  because  it  is  done  by  legal  authority.  This  is  not  a 
case  where  value  exists.     These  services  are  not  economic. 

On  the  other  hand,  the  soldiers  of  England  and  the 
United  States  perform  services  which  are  economic.  They 
are  not  compelled  to  enter  the  army.  The  government 
makes  it  worth  their  while  to  do  so.  It  ''goes  into  the 
market  for  labor,"  and  hires  men  to  leave  their  homes  or 
their  farms  or  their  shops,  and  serve  for  one  year,  or  three 
years,  or  five  years,  in  the  army.  What  they  are  to  do  there 
is  not  the  question  for  us  to  consider  here.     So  long  as  the 


6  POLITICAL  ECONOMY. 

government  hires  them,  with  clothes  and  food  and  money, 
and  so  long  as  they,  on  their  part,  freely  accept  these  terms, 
we  have  a  case  of  value,  just  as  much  as  if  they  were  hired 
to  work  upon  harhor-improvements  or  in  building  roads.  I 
do  not  say  that  it  is  just  as  well  for  the  country  to  hire  men 
to  fight  as  it  would  be  to  hire  them  to  build  roads.  I  only 
say  that,  in  each  case,  there  is  value.  The  clothing,  food, 
and  money  of  the  government  confer  upon  it  the  power  to 
command,  in  a  fair  and  free  exchange,  the  labor  of  the 
workmen,  or  of  the  soldiers.  The  labor  of  the  workmen, 
or  of  the  soldiers,  confers  upon  them  the  power  of  com- 
manding, in  a  fair  and  free  exchange,  the  clothing,  food, 
and  money  of  the  government. 

So  much  for  "^  legal  authority.''  How  about  ''personal 
sentiments"  ?  Again,  let  us  proceed  by  illustrations.  A 
mother  gives  her  thoughts,  her  care,  her  labor,  her  time, 
her  strength,  day  by  day,  without  grudging  and  without 
reserve,  to  the  rearing  of  her  childern  ;  while,  in  their  sick- 
ness, she  drains  her  very  life-blood  to  protect  and  save 
them.  But  this  is  not  a  case  of  value.  Political  economy 
has  nothing  to  do  with  it.  The  mother  renders  these  serv- 
ices to  these  children,  because  they  are  hers.  She  does  it  out 
of  affection  for  them,  and  not  for  reward.  On  the  other 
hand,  the  services  of  a  hired  nurse  or  of  a  paid  physician 
arc  economic  :  they  constitute  a  case  of  value. 

5.  Value  Not  a  Physical  Property. — The  reader  now  sees 
why  I  said,  "  irrespective  of  legal  authority  and  of  personal 
sentiments."  Leaving  out  these  words,  for  the  moment, 
let  us  see  how  our  definition  of  value  will  read:  Value  is  the 
power  which  an  article  confers  npon  its  possessor  of  com- 
manding, in  exchange  for  itself,  the  labor,  or  the  products 
of  the  labor,  of  others. 

Value  is  not  any  material  or  physical  property  of  an 
article.      In  any  given   place,  at   any  given    time,   any 


POLITICAL  ECONOMY.  1 

given  article  may  depend  for  its  value  upon  certain 
physical  or  material  properties  in  itself;  but  these  pro]?- 
erties  are  not  the  value.  Softness  is  not  value;  hard- 
ness is  not  value.  Some  articles  are  more  valuable,  the 
softer  they  are;  some  are  more  valuable,  the  harder  they 
are.  Color  is  not  value;  absence  of  color  is  not  value. 
Some  articles  are  more  valuable,  the  more  highly  they  are 
colored;  others  become  more  valuable,  the  more  perfectly 
free  they  are  from  every  tinge  of  color.  Tenacity 
is  not  value;  ductility  is  not  value.  Some  articles  are 
more  valuable,  the  greater  their  tenacity ;  others  have 
value  in  proportion  to  the  ease  with  which  they  can  be 
drawn  out.  Sweetness  is  not  value,  acidity  is  not  value. 
Honey  is  valuable  in  proportion  to  its  sweetness,  vinegar  to 
its  sourness.  We  see,  then,  that  value  is  not  any  material 
or  physical  property  of  an  article. 

6.  Transferability  Essential  to  Value. — We  have  seen  that 
value  is  power  in  exchange.  Now,  to  an  exchange,  as  to  a 
quarrel,  there  must  be  two  parties.  An  exchange  requires 
at  least  two  exchangers.  Value,  then,  is  a  social  phenome- 
non. 

Again,  in  order  that  there  shall  be  an  exchange,  there 
must  not  only  be  two  exchangers,  but  the  article  to  be  ex- 
clianged  must  be  such  that  it  can  be  detached  from  one 
and  made  over  to  the  other.  That  is,  transferability  is  es- 
sential to  value. 

This  point  is  of  much  importance,  since  it  at  once  settles 
the  relation  to  political  economy  of  certain  properties  and 
qualities,  which  many  persons  have  written  about  as  if 
these  were  wealth,  namely,  health,  intelligence,  strength, 
skill,  even  personal  honesty.  If,  however,  we  a^jply  the  test 
of  our  definition,  we  find  that  these  properties  or  qualities  are 
not  wealth,  since  they  have  not  value.  They  have  not  value, 
because  they  cannot  be  exchanged.     A  man  cannot  detach 


8  POLITICAL  ECONOMY. 

health,  strength,  skill,or  intelligence  from  himself,  and  make 
them  over  to  another  person.  They  can,  indeed,  be  taken 
away  from  the  present  owner,  as  by  death  or  sickness;  but 
they  do  not,  in  that  case,  become  the  property  of  another. 
The  gouty  millionaire  cannot,  with  all  that  he  has,  pur- 
chase the  robust  health  of  the  laborer  by  the  wayside,  or 
buy  for  his  own  empty-headed  son  the  learning  or  the 
trained  faculties  of  the  humblest  scholar. 

7.  The  Use  of  Personal  Qualities  May  be  Sold. — But  while 
these  properties  and  qualities  cannot  be  detached  and  trans- 
ferred, and  thus  cannot  be  said  to  be  wealth,  the  present 
use  of  them  can  be  made  over  to  another,  and  hence  may 
become  the  subject  of  exchange.  The  rich  invalid  may 
command  the  services  of  the  robust  laborer  in  waiting  on 
his  person;  he  may  hire  the  poor  scholar  to  be  tutor  to  his 
son.  The  use,  therefore,  of  such  personal  qualities  and 
endowments  properly  constitutes  an  item  of  wealth.  By 
the  force  of  contract,  the  possessor  may  even  transfer  the 
use  of  them  for  a  definite  period  in  the  future,  as  when  a 
man  is  hired  by  the  week,  the  month  or  the  year.  Such 
a  sale,  however,  of  personal  qualities  or  endowments  is  al- 
ways a  "contingent"  one.  It  is  always  subject  to  the 
chance  of  death  or  sickness. 

8.  Better  than  Wealth,  but  Not  Wealth. — If  we  ask  why 
it  is  that  so  many  excellent  writers  in  political  economy 
have  insisted  upon  regarding  health,  strength,  intelligence 
and  skill  as  being  wealth,  we  shall  find  that  it  is  because 
these  things  seemed  so  good  and  desirable.  But  the  fact, 
for  example,  that  health  is  better  than  most  forms  of  wealth, 
or  that  health  may  be  the  means  of  acquiring  wealth, 
does  not  make  it  wealth.  There  are  many  things  which 
are  better  than  wealth,  but  are  not  wealth.  "A  good 
name,"  says  Solomon,  "is  rather  to  be  chosen  than  riches, 
and  loving  favor  than  silver  or  gold;"  yet  a  good  name  is  not 


POLITICAL   ECONOMY.  9 

riches,  and  loving  favor  is  neither  silver  nor  gold.  And, 
at  this  point,  we  find  that  the  poiwlar  use  of  the  term  co- 
incides with  the  definition  given  it  for  scientific  purposes. 
Plain  men  do  not  speak  of  such  qualities  or  endowments  as 
being  wealth.  No  merchant  or  manufacturer  or  laboring 
man  would  include  any  one  of  these  items  in  an  account  of 
his  wealth,  however  precious  he  might  esteem  them. 

9.  The  Desire  of  Wealth. — We  have  defined  wealth.  It 
will  be  seen  that  by  this  term  is  not  meant  great  wealth; 
that  the  idea  of  luxury,  or  softness  of  living,  is  not  neces- 
sarily implied  in  it.  In  common  phrase,  when  we  speak  of 
a  man  as  wealthy,  we  mean  that  he  has  great  wealth:  that 
he  can,  if  he  pleases,  live  richly.  But  the  wealth  of  which 
the  political  economist  speaks  embraces  the  frugal  fare  and 
the  small  savings  of  the  poor  laborer,  just  as  much  as  it 
does  the  sumptuous  living  and  the  vast  accumulations  of 
the  millionaire. 

It  will  be  seen  from  the  foregoing  that  the  desire  for 
wealth  which  leadsmen  to  labor  and  to  exchange  the  prod- 
ucts of  their  labor  is  not,  in  all  cases,  or  in  most  cases, 
the  same  as  that  "  love  of  wealth  "  which  preachers  or 
moral  philosophers  are  wont  to  condemn.  The  desire  of 
wealth,  on  the  part  of  a  poor  laborer,  means  no  more  than 
his  wish  to  provide  decent  and  comfortable  subsistence  for 
those  dependent  upon  him,  and  to  save  them  from  suffer- 
ing, squalor  and  filth.  On  the  part  of  one  who  is  more 
fortunate,  the  desire  of  wealth  may  mean  the  wish  to  have 
his  family  respectably  housed  and  decently  clothed;  the 
children  well  educated  for  the  duties  of  life,  and  a  fair  pro- 
vision made  against  sickness  and  old  age.  This  is  all 
which  the  desire  of  wealth  means,  in  ihe  case  of  nearly  all 
human  beings.  On  the  part  even  of  those  more  fortunate 
still,  the  desire  of  wealth  may  mean,  not  so  much  the  taste 
for  rich  food,  sumptuous  apparel,  gay  equipage  and  social 


10  POLITICAL  ECONOMY. 

display,  as  an  ambition  to  undertake  great  works,  for 
which  large  resources  are  necessary;  a  wish  to  be  esteemed 
strong,  sagacious  and  masterful;  or  even  the  purpose,  alto- 
gether benevolent,  to  use  wealth  in  charity  or  for  the  pro- 
motion of  learning,  art  and  religion. 

It  will  appear  what  a  varied  matter  is  the  love  of,  or  the 
desire  for,  wealth,  alike  in  its  origin  and  in  its  ulterior 
objects.  It  is  probably  because  people  liave  commonly 
thought  of  the  desire  for  wealth  as  the  greed  of  gain,  as 
the  passion  for  display,  as  the  craving  for  luxur}^,  as  the 
miser's  thirst  for  gold,  or  as  the  strong  man's  love  of  power 
and  mastery,  that  political  economy  has  so  often  borne  a 
bad  name.  We  have  shown,  above,  how  partial  and  how 
false  such  a  concej^tion  is. 

10.  Political  Economy  does  not  Inculcate  Love  of  Wealth. 
— Even  where  the  desire  of  wealth  becomes  a  strong  appe- 
tite or  a  raging  passion,  political  economy  is  not  to  be 
charged  with  any  part  of  this.  The  political  economist 
has  not  implanted  a  love  of  wealth  in  the  human  mind; 
nor,  finding  it  there,  does  he  seek  to  blow  it  into  a  flame. 
He  simply  takes  it  as  he  finds  it ;  and,  regarding  it  as  a 
social  force,  he  proceeds  to  inquire  how  this  passion,  or 
propensity,  as  it  exists  among  men,  influences  their  actions 
in  respect  to  the  production,  the  exchange,  the  distribu- 
tion, the  consumption,  of  that  which  we  call  wealth.  His 
business  is  that  of  the  professor  of  a  science,  viz.,  to  trace 
effects  back  to  their  causes,  to  jjroject  causes  forward  to 
their  effects,  within  the  domain  of  wealth.  Hence,  we  see 
how  unjust  is  the  sneer  at  political  economy,  when  it  is 
spoken  of  as  the  "gospel  of  mammon." 

11.  Political  Economy  Chastens  Greed. — Not  only  has 
political  economy  not  implanted  a  desire  for  wealth  in  the 
human  mind  ;  not  only  does  it  not  inculcate  greed  of  gain  ; 
but  it  would  be  easy  to  show  that  the  study  of  political 


POLITICAL   ECONOMY.  11 

economy  has  done  much,  perhaps  more  than  any  or  all 
other  causes,  to  repress  violence,  fraud  and  rapine,  as 
means  towards  the  attainment  of  wealth.  By  showing  how 
wealth  is  really  hest  gained  and  kept,  it  has  tended  to  hanish 
a  ravenous,  ferocious  greed,  which  seeks  to  snatch  its  ob- 
jects by  brutal  force,  with  whatever  injury  to  others ;  and 
has  replaced  this  by  an  enlightened  sense  of  self-interest, 
which  seeks  its  ends  through  services  and  exchanges  mutu- 
ally beneficial,  and  which  supports  social  order  and  national 
peace,  as  the  conditions  of  general  well-being. 

Before  Adam  Smith  published  his  great  work,  the 
''Wealth  of  Nations,"  in  1776,  it  was  a  maxim  of  public 
policy  that  only  one  party  to  a  trade  could  profit  by  it : 
that  all  which  one  might  gain  the  other  must  lose.  Out 
of  this  root  grew  wars  and  commercial  restrictions,  wdiich 
set  man  against  man  and  nation  against  nation,  making 
intercourse  between  even  the  most  highly  civilized  states  a 
game  of  deceit  and  violence,  Adam  Smith,  by  his  masterly 
exi^osition  of  the  mutual  benefits  to  be  derived  from  ex- 
change, left  the  love  of  wealth  in  the  liuman  mind,  not 
rebuked  but  enlightened.  Men  might  still  seek  wealth 
as  earnestly  and  ardently  as  ever,  but  no  longer  by  the 
old,  bad,  brutal,  heathen  methods.  Little  more  than  a 
hundred  years  have  elapsed  since  the  appearance  of  the 
"  Wealth  of  Nations";  yet  mankind  have,  within  that  time, 
made  greater  progress  toward  humane  and  mutually  bene- 
ficial relations  between  states  and  nations,  than  during  all 
other  centuries  of  human  history. 


CHAPTER  11. 
THE  CAUSE  OF  VALUE. 

12.  Utility  Esseniial  to  Value. — We  have  defined  value 
as,  briefly  speaking,  power  in  exchange.  We  are  now  to 
inquire  wlience  comes  that  power  ?  Why  is  it  that  one 
article  has  value  and  another  has  not  ?  Why  is  it  that  one 
article  has  great  value,  while  another,  perhaps  more  beau- 
tiful, 25erhaps  more  useful,  has  little  value  ?  These  are 
questions  we  shall  now  try  to  answer. 

We  may  certainly  begin  by  assuming  that  no  one  will 
give  for  any  article  his  labor  or  the  product  of  his  labor, 
unless  he  has  a  use  for  that  article,  or  unless  he  is  buying 
it  for  someone  who  has  a  use  for  it.  Hence  we  say  that 
usefulness,  or  utility,  is  an  essential  element  of  value.  We 
need  make  no  exception  to  the  statement,  that,  wherever 
value  is,  there  is  utility. 

But  we  must  explain  just  what  we  mean  by  utility,  or 
usefulness.  That  word,  as  we  use  it  here,  signifies  no 
more  than  that  an  article  meets  a  felt  human  want :  that 
men  have  a  use  for  it.  But  this  is  not  the  sense  which  the 
word  always  has.  By  it  is  sometimes  meant  that  an  ar- 
ticle is  beneficial :  that  it  does  good  to  the  person  who 
owns  or  consumes  it,  in  making  him  stronger,  wiser,  hap- 
pier or  better  ;  or,  else,  that  it  does  good  to  the  community. 
Now  this  would  not  answer,  in  the  present  case.  An  article 
may  have  utility,  in  the  sense  that  men  have  a  use  for  it, 
in  the  sense  that  it  satisfies  a  want  which  men  feel,  and 
yet  be  harmful,  perhaps  in  a  high  degree.     Intoxicating 

12 


POLITICAL  ECONOMY.  13 

drinks  are,  to  most  persons  who  buy  them,  very  injurious  : 
3'et,  so  long  as  men  will  give  for  them  their  labor  or  the 
products  of  their  labor,  intoxicating  drinks  possess  utility, 
in  the  economic  sense.  Many  articles  which  are  always 
used,  or  which  are  often  used,  in  such  a  way  as  to  injure 
the  mind,  or  body,  or  both,  are  useful  in  this  sense. 

13.  Value  not  Proportioned  to  Utility. — We  have  said 
that  there  is  always  utility  where  there  is  value.  Is  it, 
also,  always  true  that  there  is  value  wherever  there  is 
utility  ?  We  answer,  no.  There  cannot  be  value  without 
utility,  but  there  may  be  utility  without  value.  Nothing 
is  more  useful  than  atmospheric  air :  there  is  nothing  for 
which  men  have  a  more  constant  use,  nothing  of  which 
they  have  a  more  intense  need.  Yet  atmospheric  air  has, 
as  a  general  thing,  no  value  at  all.  Every  man,  even  the 
poorest  and  meanest,  takes  of  it  what  he  will,  without  giv- 
ing anything  in  exchange.  Water,  too,  has  a  high  degree 
of  utility.  Although  men  have  a  use  for  it  in  widely  vary- 
ing degrees,  some  water,  more  or  less,  every  human  being 
craves,  with  an  eagerness  which  would  soon  result  in 
delirium  and  death,  were  it  denied.  Yet  water  is  generally 
to  be  had  without  giving  anything  in  exchange  for  it. 
Men  help  themselves  to  what  they  want  of  it. 

Not  only  is  it  true  that  there  are  some  articles  which 
have  great  utility  and  no  value  at  all :  but  among  articles 
which  have  both  utility  and  value,  the  value  is  not  always 
in  proportion  to  the  utility.  Of  two  articles,  both  of  which 
are  very  useful,  both  of  which  men  desire  and  earnestly 
crave,  either  of  which  it  would  be  pain  to  be  deprived  of, 
one  may  have  a  high  value  and  the  other  a  low  value. 

14,  Difficulty  of  Attainment,  the  Second  Element  of 
Value. — Wo  conclude,  then,  that  there  is  another  element 
of  value.  And,  on  reflection,  we  find  that  element  to  be 
difficulty  of  attainment,  or,  as  it  is  sometimes  called,  scar- 


14  POLITICAL  ECONOMY. 

city.  If  we  apply  these  two  tests,  utility  and  difficulty  of 
attainment,  we  shall  be  able  to  explain  every  case  of  value 
Avhich  we  meet,  or  of  which  we  can  conceive.  We  are 
sure,  therefore,  that  our  analysis  is  correct. 

The  reason  why  men  do  not,  in  general,  give  their  labor, 
or  the  products  of  their  labor,  in  exchange  for  atmospheric 
air  or  water,  is  not  that  these  substances  are  not  useful  to 
them;  but  that  there  is,  usually,  no  difficulty  in  obtaining 
as  much  of  either  as  anyone  can  require.  The  moment 
there  comes  to  be  any  difficulty  in  obtaining  a  sufficient 
amount  of  atmosplieric  air,  that  substance  may  fairly  be- 
come the  subject  of  exchange:  that  is,  may  acquire  value. 
Air  maybe  delivered  to  divers  under  the  sea,  through  pipes 
or  rubber  tubes,  at  a  fixed  price  per  cubic  foot.  A  great 
amount  of  labor  and  capital  is  often  employed  in  supplying 
atmospheric  air  to  miners  under  ground,  where  it  is  paid 
for  at  a  high  price.  While  one  can  always  have  in  his  house, 
for  nothing,  as  much  bad  air  as  his  family  can  breatlie, 
pure  air  in  a  dwelling  is  often  very  costly.  It  is,  indeed, 
one  of  the  most  expensive  of  all  luxuries:  so  expensive  that 
many  persons  who  devote  large  sums  to  display  and  fashion 
do  not  feel  themselves  rich  enough  to  have  their  own  houses, 
and  the  churches,  schools,  concert  halls  and  theatres  which 
they  or  their  children  attend,  decently  well  ventilated. 

In  general,  as  we  said,  water  has  no  value.  Indeed,  a 
great  deal  is  sometimes  paid  for  merely  getting  rid  of  it: 
for  pumping  it  out  from  cellars  and  mines  and  low  lands, 
or  for  building  dikes  or  levees  against  it,  along  the  banks 
of  rivers  or  upon  the  sea-shore.  On  the  other  hand,  when, 
in  desert  countries  or  in  great  cities,  water  becomes  difficult 
of  attainment,  in  the  quantities  desired  and  in  the  right 
times  and  places,  it  comes  to  command  a  price,  j^erhaps  a 
high  price. 

Again,  iron,  although  distinctly  th«  most  useful  of  all  the 


POLITICAL   ECONOMY.  15 

metals,  in  the  extent  and  variety  of  its  applications,  has  a 
much  lower  value  than  many  others,  simply  because  the 
difficulty  of  attainment  is,  in  its  case,  less.  The  price 
which  a  man  pays  for  a  knife,  for  instance,  does  not  measure 
the  usefulness  of  the  knife  to  him,  but  only  the  difficulty 
of  attainment.  He  pays,  in  fact,  fifty  cents  for  the  knife: 
but  he  would  sooner  pay  $5,  or  $10,  or  even  $50,  than  not 
have  a  knife. 

15.  Demand  and  Supply. — We  have  thns  far  spoken  of 
the  two  elements  of  value,  viz.,  utility  and  difficulty  of 
attainment;  but  when  we  come  to  investigate  the  ratios  of 
exchange,  and  to  talk  of  buying  and  selling  in  the  market, 
it  will  help  us  very  much  to  substitute  for  these  terms  two 
others,  viz..  Demand  and  Supply. 

The  fad  that  an  article  is  vsefvl  gives  rise  to  the  demand 
for  it.  The  difficulty  of  attainment,  in  the  case  of  any  ar- 
ticle, governs  the  supply  of  it.  The  value  of  an  article  de- 
fends upon  the  demand  for  it  and  the  supply  of  it.  A  large 
demand  does  not  necessarily  mean  a  high  price,  since  the 
supply  may  be  practically  unlimited.  A  small  supply  does 
not  necessarily  mean  a  high  value,  since  the  demand  may, 
also,  be  small.  But  in  the  case  of  any  article  which  is  de- 
sired by  men,  and  which  can  only  be  obtained  through  the 
exertions  and  sacrifices  of  economic  agents,  value  is,  at  any 
time,  fixed  by  the  relation  between  supply  and  demand. 
Other  things  equal,  if  demand  increases,  or  supply  decreases, 
value  will  rise.  On  the  other  hand,  if  demand  decreases  or 
supply  increases,  value  tvill  falL  Inasmuch  as  the  demand 
for  any  article  and  the  supply  of  it  are  subject  to  frequent 
changes,  sometimes  great  and  sometimes  small,  sometimes 
one  way,  sometimes  the  other,  it  is  not  to  be  expected  that 
its  value  will  long  remain  the  same.  But  this  liability  to 
change  of  value  is  very  difi'erent  in  the  case  of  different 
articles.     Some  move  as  rapidly  and  frequently  as  a  weather- 


16  POLITICAL  ECONOMY. 

vane;  others  have  a  certain  degree  of  stability.  But  it  is 
always  to  be  borne  in  mind  that,  whenever  any  change  of 
value  takes  place,  it  must  be  due  to  a  change  in  demand,  or  in 
supply,  or  in  the  two  unequally.  We  say  unequally,  since, 
if  the  change  in  demand  were  just  equal  to  the  change  in 
supply,  value  would  remain  unaffected. 


CHAPTER  III. 
THE  PRODUCTION  OF  WEALTH. 

16.  Production  Defined. — Tlie  term,  production  of  wealth, 
embraces  all  those  acts  and  courses  by  which  it  comes  about 
(1)  that  an  article  which  before  had  no  value  acquires  value, 
or  (2)  that  an  article  which  before  had  a  certain  value  now 
bears  a  higher  value.  The  production  of  wealth  is  not  the 
creation  of  matter,  but  the  creation  of  value. 

The  word,  production,  is  derived  from  two  Latin  words 
which  mean  drawing  forth  or  bringing  forward.  The  term 
is  very  significant  as  applied  to  wealth.  Much  of  the  pro- 
duction of  wealth  which  takes  place,  as  we  shall  see,  con- 
sists merely  in  drawing  things  out  from  where  they  have  no 
value  and  in  bringing  them  forward  for  human  use. 

17.  Three  Kinds  of  Value. — A  German  economist  (Prol 
Knies)  has  said  that  the  production  of  wealth  embraces  the 
creation  of  three  kinds  of  value,  time-value,  place-value, 
and  form-value.  The  distinction  is  not  one  which  we  shall 
need  to  carry  through  our  study  of  political  economy;  but 
it  is  interesting  at  this  point,  as  affording  good  illustrations 
of  what  is  meant  by  the  creation  of  values. 

18.  Time-value. — Time- value  is  created  in  the  case  of 
ice,  when  it  is  produced,  kept  along,  carried  over,  from  the 
winter,  when  nobody  wants  it,  and  when  it  is,  jierhaps,  an 
obstruction  and  a  nuisance,  into  the  summer,  when  many 
people  want  it,  and  want  it  very  much.  Keeping  the  ice 
over  from  winter  to  summer,  ])roducing,  extend i7ig  it,  with 
all  which  that  requires  of  labor  or  of  care,  is  the  creation 

17 


16  POLITICAL  ECONOMY. 

of  value:  is,  therefore,  the  prodiictiou  of  wealth.  Wine 
and  many  other  articles  of  human  use  may  acquire  greatly 
increased  value  with  age. 

19.  Place-value. — This  species  of  value  is  created  when- 
ever an  article  is  safely  transported  fiom  a  point  where  it 
has  no  value  to  a  point  where  it  has  value,  or  from  a  point 
where  it  has  a  certain  value  to  a  jDoiut  where  it  has  a  greater 
value.  Most  of  the  values  created  by  commerce  are  of  this 
kind.  Many  commodities  have  two  or  three  times  the  value 
in  the  markets  of  New  York  or  London  which  they  have 
in  the  regions  from  which  they  were  brought.  Timber 
which  is  worth  eight  or  ten  dollars  a  thousand  feet  in  Georgia 
or  Canada,  will  bring,  without  change  of  form,  twenty-five 
dollars  in  Boston. 

The  addition  to  the  value  of  articles  due  to  transportation 
varies  very  widely.  It  is,  of  course,  greatest  in  the  case  of 
bulky  articles,  like  lumber  and  coal,  and  of  perishable  ar- 
ticles, like  summer  fruits.  Some  articles  will,  as  the  saying 
is,  ''bear  transportation;"  that  is,  their  heightened  value 
will  repay  the  cost  of  transportation,  for  thousands  of  miles ; 
other  articles  are  not  worth,  in  any  market,  as  much  as 
would  be  required  to  transport  them  a  hundred  miles,  even 
by  the  easiest  route.  Of  course,  a  great  difference  is  made 
in  the  cost  of  transportation,  according  as  the  carriage  is  by 
water  or  by  land;*  according  as  it  is  done  by  carts  and 
wagons,  or  by  trains  of  cars;  or,  again,  if  it  be  by  carts  or 
wagons,  according  as  it  is  over  smooth  and  level  roads,  or 
over  rough  and  steep  mountain  paths.  It  is  an  old  saying 
that  "  resistance  is  distance;"  and  it  is  true  that  two  places 
separated  by  a  thousand  miles  of  navigable  water  may  be 

*  In  liis  speech  ou  the  tariff,  in  1824,  Daniel  Webster  estimated  the 
cost  of  bringing  iron  from  Sweden,  by  water,  to  Philadelphia,  to  be 
no  greater  than  the  cost  of  carrying  it  from  that  port  fifty  miles  into 
the  interior. 


POLITICAL  ECONOMY.  19 

nearer,  economically  speaking,   than  two   places  divided 
merely  by  the  spur  of  a  mountain  chain. 

20.  Form-value. — The  third  kind  of  value  which  has 
been  spoken  of,  namely,  form-value,  is  that  which  is  most 
important  of  all.  By  far  the  greater  part  of  the  operations 
which  we  call  industry,  are  for  the  purpose  of  creating  this 
species  of  value.  Creating  value,  as  we  said  before,  not  cre- 
ating matter,  since,  generally  speaking,  the  matter  involved 
grows  less  as  the  value  grows  greater.  A  block  of  marble, 
which  may  be  worth  twenty  dollars,  comes  under  the  hands 
of  a  sculptor.  His  whole  work  consists  of  chipping-otf  por- 
tions of  the  marble,  which  are  thrown  away.  When  the 
sculptor  has  finished  his  task,  there  is  only  one-half  or  one- 
third  as  much  marble  as  at  the  beginning ;  but  the  statue 
is  worth  a  hundred,  a  thousand,  or  ten  thousand  dollars,  ac- 
cording to  the  skill  and  taste  of  the  sculptor.  Cotton  has  a 
certain  value  in  the  storehouse  of  the  planter,  along  the  Red 
River  or  the  Yazoo.  After  the  cotton  has  been  ginned, 
i.e.  cleaned  by  machinery,  there  is  less  of  it :  less,  not 
only  by  the  amount  of  seed  and  impurities  removed,  but 
less  of  actual  cotton,  since  the  ginning  process  involves 
some  waste.  Notwithstandiug  this,  the  cotton  is  worth 
more,  although  there  is  less  of  it.  When  the  cotton  is 
taken  to  the  mill,  and  picked  and  carded  and  rolled  and 
spun  and  woven,  there  is,  at  each  stage  of  the  manufac- 
ture, a  loss  of  material,  greater  or  smaller.  Yet,  in  each 
case,  what  is  left  is  worth  more  than  the  whole  was,  until 
we  come  to  the  point  where  the  pound  of  cotton,  which  was 
worth  eight  cents  in  the  planter's  hands,  is  worth  fifteen, 
or  twenty-five,  or  fifty  cents,  in  dress  goods,  in  thread  or 
in  lace.  When  iron  ore  is  made  into  pig-iron,  there  is  a 
great  loss  of  iron  ;  when  pig-iron  is  made  into  wrought-iron, 
there  is  a  further  loss  ;  when  wrought-iron  is  worked  up 
into  building  or  carriage  hardware,  the  quantity  is  still 


20  POLITICAL  ECONOMY. 

more  diminished  ;  but  at  each  stage  there  is  an  increase  of 
value. 

21.  Wealth  and  Value,  Again. — Always  and  everywhere, 
the  production  of  wealth  means  the  creation  of  value  ;  and 
always  and  everywhere,  value  is  power-in-exchange.  It  is 
not  a  question  whether  men  ought  to  desire  the  articles 
produced  ;  whether  those  articles  make  them  better  or 
wiser  or  healthier  or  happier.  If,  in  fact,  a  man  does  de- 
sire any  article  sufficiently  to  give  for  it  his  labor  or  the 
product  of  his  labor,  there  we  have  a  case  of  value.  Wher- 
ever and  whenever,  by  whatever  acts,  in  whatever  ways, 
value  is  created,  there  and  then  wealth  is  produced. 

22.  The  Three  Primary  Agents*  of  Production. — The 
three  primary  agents  in  the  production  of  wealth  are  land, 
labor  and  capital.  In  every  creation  of  values,  all  the?e 
agents  are  engaged,  although  the  proportions  in  which 
they  severally  contribute  to  the  production  of  wealth  vary 
widely.  In  the  production  of  a  pound  of  cotton,  worth  ten 
cents,  there  is  a  large  use  of  land.  When  that  cotton  is 
made  into  fabrics  worth  twenty-five  cents,  the  additional 
use  of  land  is  comparatively  slight,  consisting  mainly  of 
the  occupation,  for  a  few  seconds  of  time,  of  a  very  small 
part  of  the  ground  on  which  the  factory  is  built,  and  of  a 
few  quarts  of  water  falling  through  fifteen  or  twenty  feet 
and  helping  to  turn  the  great  wheel  of  the  mill.  When  the 
cloth,  thus  made,  is  cut  and  sewn  and  formed  into  a  gar- 
ment, the  additional  use  of  the  land  is  probably  smaller, 

*  When  the  reader  shall  reach  the  close  of  Chapter  VII.,  it  will  be 
seen  that  we  introduce  a  fourth  grand  agent  in  the  production  of 
wealth,  under  modern  industrial  conditions,  viz.  business  ability; 
meaning,  by  that,  business  ability  (both  natural  and  acquired)  in  an 
exceptional  and  high  degree,  suited  to  the  vast  cares  and  responsi- 
bilities of  production  where  the  division  of  labor  has  been  carried  to 
a  wide  extent.  This,  however,  cannot  properly  be  termed  &p)'iinary 
agent  of  production. 


POLITICAL  ECONOMY.  21 

still,  for  each  cent's  worth  of  value  added.  Even  in  the 
creation  of  time-value  and  place-value,  a  certain  use  of  land 
is  required,  whether  for  stores  and  warehouses,  or  for  roads 
and  the  tracks  of  railroads,  stations,  wharves,  etc. 

In  the  same  way,  the  ^jroportions  in  which  labor  and 
capital  contribute  to  the  production  of  wealth  vary  widely. 
Two  articles  may  be  exchanged  for  each  other,  one  of  which 
has  required  the  use  of  two  times,  five  times,  or  ten  times 
as  much  capital  as  the  other.  In  that  case,  the  other  arti- 
cle has  probably  cost  more,  perhaps  very  much  more,  labor 


CHAPTER  IV. 
LAND. 

23.  Land  Defined. — The  term,  land,  as  used  by  the  polit- 
ical economist,  embraces  all  natnral  agents,  of  which  use  is 
made  in  tlie  production  of  wealth.  It  has  reference,  not 
more  to  tilled  fields  than  to  pasture  and  meadow,  to  forest 
and  mine.  It  embraces  the  water  as  well  as  the  "  dry  land." 
Wherever  a  stream  falling  over  a  ledge  gives  the  force  which 
is  used  to  drive  the  great  wheel  of  the  mill,  there  we  have  a 
case  of  the  use  of  land,  in  the  production  of  wealth.  The 
fisheries  of  the  deep  sea  and  of  the  sliallow  bays  and  arms 
are  closely  related  to  such  "  extractive  industries "  as  the 
cutting  of  timber  and  fuel  from  the  forest,  the  raising  of 
coal  and  metallic  ores  from  the  depths  of  the  earth,  or  the 
gathering  of  ice  from  the  frozen  waters  of  fresh  lakes  and 
rivers.  All  these  operations,  even  to  the  boring  for  petro- 
leum or  natural  gas,  relate  to  the  land,  as  the  economist 
uses  that  word. 

24.  The  QrUantity  of  this  Agent  of  Production  is  Fixed. 
■ — The  land — the  aggregate  of  all  the  natural  agents  at  the 
disposal  of  any  community — is,  unlike  the  capital  that  may 
be  placed  u^ion  the  land,  unlike  the  laborers  who  may  be 
called  to  work  upon  it — a  fixed  quantity.  There  is  so  much 
of  it  and  there  can  be  no  more.  It  is  not  in  the  power  of 
mankiiid  to  increase  the  breadth  of  the  land,  or  to  add  any- 
thing to  the  sum  of  the  natural  agents  which  are  subject  to 
human  uses.  Men  may,  indeed,  from  time  to  time,  dis- 
cover resources  in  nature  not  previously  suspected  ;  they 


POLITICAL  ECONOMY.  23 

may  increase  the  dry  surface  at  the  expense  of  the  water 
surface,  as  when  a  great  part  of  Holland  was  redeemed 
from  the  ocean  by  dikes,  built  with  prodigious  labor  ;  as 
when  lakes  and  swamps  are  tapped  and  drained,  to  become 
the  fields  of  a  flourishing  agriculture.  Again,  whereas  one 
generation  only  scratched  the  surface,  to  raise  a  scanty  and 
precarious  crop,  succeeding  generations  may  learn  to  plough 
and  bring  up  the  productive  essences  of  the  soil  from  great 
dejjths.  Still  again,  by  engineering  skill  and  the  invention 
of  powerful  machinery,  shafts  and  galleries  may  be  run 
through  solid  rock  ;  and  substances,  liquid  and  solid,  of 
great  usefulness  to  men,  may  be  raised  through  the  crust  of 
the  earth,  to  a  distance  of  1500  or  "2000  feet.  But  in  all 
this  there  is  no  addition  to  the  sum  of  natural  agents  ;  only 
a  larger  or  a  better  use  of  those  already  existing.  Sooner 
or  later,  later  or  sooner,  human  ingenuity  and  labor  will 
reach  the  end ;  and  it  will,  thereafter,  only  be  a  question  of 
the  wise  or  the  unwise  use  of  the  natural  agents  placed  at 
the  disposal  of  mankind. 

25.  All  Use  of  Land  involves  a  Certain  Loss. — Not  only 
do  the  i^roductive  properties  and  powers  of  the  soil  con- 
stitute a  fund,  which  cannot  be  increased  by  human  effort ; 
but  there  is  involved,  in  all  use  of  the  land,  a  certain  loss, 
which,  so  far  as  science  enables  us  to  foresee,  is  2iermanent 
and  irretrievable. 

That  loss  may,  for  any  given  production  of  Avealth,  be 
very  small,  under  prudent  management ;  while  reckless- 
ness, greed  and  ignorance  may  turn  that  necessary  loss  into 
monstrous  and  hideous  waste.  Many  of  the  once  fairest 
lands  on  earth,  which  supported  large  populations  in  com- 
fort, are  now  little  better  than  sterile  deserts,  owing  to 
man's  abuse  of  nature. 

How,  it  will  be  asked,  can  tliis  be  so,  if  tlie  modern 
scientific  law  known  as  '^the  conservation  of  energy  "be 


24  POLITICAL  ECONOMY. 

true?  How  can  any  force  be  lost  out  of  nature?  I 
answer^  No  force  can  be  lost ;  but  force  may,  by  purpose  or 
accident,  be  transmuted  from  forms  in  which  it  has  min- 
istered to  human  wants,  into  forms  in  which  it  is  useless 
to  man,  and  even  into  forms  which  are  injurious  and  de- 
structive. A  cottage,  which  has  long  sheltered  a  family, 
may,  through  the  snapping  of  a  coal,  pass-off  in  heat 
and  smoke ;  and  in  half  an  hour  nothing  will  be  left  but 
a  heap  of  ashes  and  blackened  stones.  There  is  just  as 
much  force  in  the  world  ;  but  there  is  one  cottage  less. 
Almost  any  article  that  nourishes  the  human  frame  maybe 
transmuted  into  more  or  less  virulent  poisons.  The  mere 
dissipation  and  scattering  of  valuable  substances  may 
deprive  them  of  their  usefulness.  Such  is  the  condition 
under  which  the  human  race  occupies  and  enjoys  the 
earth. 


CHAPTER  V. 
DIMINISHINa  RETURNS  IN  AGRICULTURE. 

26.    The   Great  Law  of  Agricultural  Production. — But, 

aside  from  the  progressive  diminution  of  tlie  productive 
powers  and  properties  of  nature,  through  human  use,  we 
find  that  the  land,  at  any  given  time,  is  cultivated  or  en- 
joyed subject  to  one  universal  condition,  which  we  express 
by  the  term,  the  law  of  diminishing  returns  in  agriculture. 
This  law  may  be  stated  as  follows : 

After  a  certain  point  has  been  reached,  in  the 
cultivation  of  any  tract  or  field,  an  increase  of 
product  cannot  be  obtained  without  more  than  a  pro- 
portional application  of  labor,  or  capital,  or  both. 

Thus,  we  may  suppose  that  a  field  in  Hampshire,  Eng- 
land, is  producing  24  bushels  to  the  acre,  under  an  outlay, 
by  the  farmer,  in  labor  aud  capital,  which  we  may  repre- 
sent by  2in.  Now,  inasmuch  as  this  field  has  long  been 
under  cultivation  in  a  community  wliere  lal)or  and  capital 
are  abundant,  and  inasmuch  as  the  farmer  knows  all  about 
the  field,  what  is  best  to  do  with  it,  how  it  can  be  made  to 
yield  the  largest  crop  for  the  least  labor,  we  may  fairly  as- 
sume that  the  point  of  diminishing  returns  has  been 
reached.  If  this  be  so,  then  it  will  be  tru(^  that  tlu'  farmer 
cannot  raise  the  crop  to  27  bushels,  an  acre,  by  simply  ex- 
pending 27a  upon  the  land ;  still  less  can  he  raise  the  crop 
to  30  bushels,  an  acre,  by  expending  30a;  much  less,  still, 
can  he  raise  the  crop  to  33  bushels  by  expending  33<7.  In- 
stead of  this,  he  might  find  that  27  bushels  would  cost  28a; 


26  POLITICAL  ECONOMY. 

30  bushels,  32«;  33  bushels,  30«.  The  amounts  of  labor 
and  capital  required  to  raise  the  larger  crops  might  even 
increase  more  rapidly,  perhaps  much  more  rapidly.  To 
raise  33  bushels  to  the  acre  might  cost,  not  36a,  but  AQa; 
while  to  raise  36  bushels  might  cost  50rc,  and  to  raise  39 
bushels  might  cost  60a.  But,  whether  the  increase  in  the 
amounts  of  labor  and  capital  required  be  greater  or  be 
smaller,  it  is  true  tliat,  whenever  a  certain  jioint  has  been 
reached  in  the  cultivation  of  any  field,  for  tlie  purposes  of 
any  crop,  a  more  than  proportional  amount  of  labor,  or  of 
capital,  or  of  both,  will  thereafter  be  necessary,  in  order  to 
increase  the  produce,  in  any  degree,  however  slight.  This 
is  what  we  mean  by  the  law  of  diminishing  returns  in 
agriculture. 

27.  The  Universality  of  this  Condition. — The  existence  of 
this  condition  cannot  be  disputed.  There  is  no  acre  of 
land  on  the  face  of  the  globe,  on  which  60  bushels  of  wheat 
can  be  raised  with  twice  as  much  labor  and  capital ;  90 
bushels,  with  three  times  as  much  labor  and  capital ;  and 
120  bushels,  with  four  times  as  much  labor  and  capital,  as 
would  be  sufficient  to  raise  30  bushels.  Every  time  a  far- 
mer breaks  up  a  new  field,  in  order  to  increase  his  crop,  he 
bears  testimony  to  the  existence  of  this  law,  for,  if  that  law 
did  not  exist,  it  would  be  easier  for  him  to  increase  his  crop 
by  applying  a  larger  amount  of  labor  and  capital  to  the  old 
land.  Generally  speaking,  the  new  land  he  breaks  up  is 
not  quite  so  good  as  the  old  ;  yet  it  pays  him  better  to  raise 
the  additional  produce  from  poorer  land  than  to  ''force" 
the  cultivation  of  the  older  and  the  richer  tracts.  Every 
time  a  body  of  population  leaves  an  old  country  to  break 
up  land  in  a  new  one,  fresh  testimony  is  paid  to  the  exist- 
ence of  this  law,  which,  indeed,  has  furnished  the  main 
motive  force  of  the  migrations  which  make  up  so  large  a 
part  of  human  history. 


POLITICAL  ECONOMY.  27 

And  this  law  applies  universally  to  all  the  produce  of  the 
land,  whether  in  the  form  of  ^' crops/'  or  of  ore  from  the 
mine,  or  of  fish  from  the  sea,  or  of  timber  from  the  forest, 
or  of  wool  and  flesh  from  the  sheep  that  graze  over  the  un- 
broken ground  :  only,  in  these  latter  cases,  the  operation  of 
the  law  is  more  apt  to  be  disguised,  or  hidden  from  view, 
by  other  causes. 

Let  us  take,  for  illustration,  the  ore  from  the  mine.  The 
larger  the  quantity  of  ore  which  it  is  necessary  to  raise,  the 
deeper  must  the  miner  go  into  the  crust  of  the  earth.  The 
deeper  the  mine,  the  greater  the  labor  of  pumping  out  the 
water  which  continually  tends  to  flood  it ;  the  greater  the 
labor  required  for  ventilation,  to  force  in  fresh  air  and  ex- 
pel the  poisonous  gases  which  are  every  hour  forming  in  the 
shafts  and  galleries  ;  the  greater  the  labor  required  to  hoist 
the  ore,  ton  after  ton,  to  the  surface. 

28.  Importance  of  this  Law. — The  law  of  diminishing  re- 
turns in  agriculture  must  be  mastered  in  all  its  bearings,  if 
the  student  is  to  make  progress  safely  in  Political  Economy. 
If  this  principle  is  not  at  the  time  understood,  or  is  subse- 
quently lost  sight  of,  the  most  monstrously  false  opinions 
may  be  formed  regarding  the  production  of  wealth  and 
the  conditions  of  Iniman  existence.  But  for  the  law  of 
diminishing  returns,  thousands  of  millions  of  men  might 
live  in  the  United  States  as  comfortably  as  tens  of  millions. 
As  it  is,  all  mankind  dwell,  and  must  forever  dwell,  under 
the  shadow  of  this  condition.  After  a  certain  point  has 
been  reached,  land  will  only  yield  the  material  for  food, 
clothing  and  shelter  in  continually,  and  after  a  while, 
rapidly,  diminishing  proportions,  in  return  to  man's  effort. 

And  that  "  point"  is  not  merely  a  theoretical  one,  or  one 
which,  while  it  might  be,  is  not  likely  ever  to  be,  attained. 
The  point  of  diminishing  returns  has  already  been  reached 
in  most  of  the  countries  of  the  world.    In  many,  it  has  long 


28  POLITICAL  ECONOMY. 

since  been  passed,  with  the  result  of  misery,  squalor  and 
disease  to  helpless  millions.  Even  the  ''^new  eonntries " 
of  the  globe  are  rapidly  approacliing  that  point. 

Of  course,  when  one  is  reasoning  in  regard  to  the  opera- 
tion of  any  force,  he  is  always  understood  to  mean  "other 
tilings  equal."  Now,  as  other  things  seldom  are  equal  at 
any  given  time,  and  as  they  tend  to  become  more  and  more 
unequal  from  time  to  time,  the  conclusions  one  may  reach, 
in  writing  of  the  operations  of  any  simple  force,  will  re- 
quired to  be  understood,  or  to  be  qualified,  or  to  be  modi- 
fied, or  to  be  corrected,  according  as  other  things  are  un- 
equal. The  fact  that  other  things,  which  affect  the  culti- 
vation or  enjoyment  of  the  land,  change  greatly,  from  time 
to  time,  has  obscured  the  lawof  diminishing  returns,  in  the 
sight  of  the  unthinking,  and  has  even  led  some  generally 
intelligent  persons  to  deny  its  existence. 

29.  Causes  which  set  back  the  Point  of  Diminishing  Re- 
turns.— Thus,  when  we  say  that,  after  a  certain  point,  the 
produce  of  the  laud  can  only  be  increased  through  a  more 
than  proportional  application  of  labor  and  capital,  we  as- 
sume, among  other  things,  that  the  art  of  agriculture  re- 
mains the  same.  If  improvements  take  place,  these  will 
not  change  the  law,  but  they  will  change  the  point  at  which 
the  law  begins  to  apply.  Let  us  illustrate.  One  hundred 
years,  or  fewer,  ago,  it  was  universally  believed  that,  if  a 
piece  of  land  were  to  be  cultivated  every  year,  through  a 
considerable  period,  it  would  become  exhausted  :  that  is, 
the  land  would  lose  its  fertility  and  would  thereafter  be 
worthless.  Consequently,  it  was  held  that,  for  one  year 
out  of  three,  or  out  of  four,  land  should  be  allowed  to  lie 
"  fallow,"  that  is,  uncultivated,  and  no  demand  be,  for 
that  year,  made  upon  its  productive  essences.  Now,  under 
this  condition,  it  might  have  happened  that  a  community, 
with  a  certain  number  of  people,    cultivating,    say,  6000 


POLITICAL  ECONOMY.  29 

acres,  had  just  readied  and  touched  the  point  of  diminish- 
ing returns  ;  i.e.,  the  number  of  laborers  being  wliat  it  was, 
tlie  product,  per  laborer,  was  then  greater  than  it  would 
have  been  with  a  larger  number  of  laborers.  More  labor- 
ers would,  indeed,  have  produced  more  corn ;  but  not 
enough  more  to  make  each  laborer's  share  as  large  as  be- 
fore. Now,  in  the  case  of  this  community,  it  might  have 
happened  that,  just  at  this  point,  the  principle  of  the 
"rotation  of  crops  "was  discovered.  What  is  that  prin- 
ciple? This:  that  different  crops  do,  to  a  considerable 
extent,  draw  different  elements  from  the  soil.  Crop  a 
takes  element  a;  crop  h,  element  h ;  crop  c,  element  c. 
Consequently,  a  piece  of  land  which  had  been  cultivated, 
one  year,  in  crop  a,  and  the  next  year  in  crop  h,  might 
really  be  resting  as  to  elements  a  and  h,  while  producing 
crop  c,  the  third  year. 

The  discovery  of  this  principle  would  clearly  change  the 
point  of  diminishing  returns,  in  the  case  of  the  community 
we  have  supposed.  Formerly,  it  may  have  been  the  custom 
to  let  the  land  lie  idle  one  year  out  of  three  :  in  that  case, 
oidy  4000  acres  could  be  cultivated  in  any  given  year. 
Now,  6000  acres  may  be  cultivated  every  year,  wltlch  gives 
the  same  result  as  if  tlie  land  had  heen  increased  to  9000 
acres,  without  the  rotation  of  crops.  Consequently,  the 
number  of  laborers  may  increase  for  a  considerable  time  be- 
fore they  reach  the  new  point  of  diminishing  returns. 

30.  Effect  of  Agricultural  Improvements. — One  hundred 
years  ago,  land,  in  the  most  highly  civilized  countries,  was 
cultivated  by  means  of  shabby  little  ploughs  with,  at  best,  an 
iron  tip  upon  the  share.  Consequently,  the  soil  was  brought 
up  by  the  plough  from  but  a  little  depth  ;  and  it  was  almost, 
though  not  quite,  the  same  as  if  the  soil  itself  had  been 
shallow.  Our  own  President  Jefferson  is  said  to  have  been 
the  inventor  of  the  first  iron  plough.     By  little  and  little. 


30  POLITICAL  ECONOMY 

the  iron  plough  grew  larger  and  stronger,  bringing  up  the 
soil  from  greater  and  greater  depths. 

Now,  an  acre  which  is  ploughed  to  the  depth  of  sixteen 
inches  may  not,  taking  ten  or  fifty  years  together,  produce 
twice  as  much  as  an  acre  which  is  ploughed  to  the  depth 
only  of  eight  inches,  but  it  will  certainly  produce  a  great 
deal  more  in  any  year  or  during  a  term  of  years.  If  we 
suppose,  then,  that,  in  the  community  we  have  been  talk- 
ing about,  the  point  of  diminishing  returns  had  again  been 
reached,  by  the  increase  of  laborers,  in  spite  of  the  rotation 
of  crops,  it  might  happen  that  this  point  would  be  once 
more  changed  through  the  introduction  of  deep  ploughing- 
The  6000  acres,  cultivated  to  the  depth  of  fourteen  or  six. 
teen  inches,  would  be  equal  to  8,  9  or  10  thousand  acres, 
perhaps,  when  cultivated  to  the  depth  only  of  six  or  eight 
inches. 

Again,  we  might  suppose  that  the  vegetable  species,  up 
to  this  time  cultivated,  had  been  such  as  yielded  a  very  large 
amount  of  root  and  stock,  for  a  small  amount  of  grain  and 
fruit.  If  this  were  the  case,  the  introduction  of  new  vegeta- 
ble species,  yielding  a  large  amount  of  edible  matter,  to  a 
small  amount  of  stalk  and  root,  would  be  practically  equiva- 
lent to  increasing  the  amount  of  land  :  that  is,  a  larger 
number  of  laborers  could  get  from  the  soil  as  good  a  living 
as  the  smaller  number  had,  before  this  change. 

In  the  same  way,  in  the  case  of  a  community  raising 
sheep  and  cattle,  the  introduction  of  improved  breeds  in- 
stead of  the  little,  rough,  underbred  animals  which  for- 
merly yielded  very  little  of  flesh  or  of  wool  or  of  milk,  for  a 
large  amount  of  grass  consumed,  might  have  the  effect  to 
move  the  point  of  diminishing  returns  much  further  off. 

31.  The  Law  Holds,  None  the  Less. — As  has  been  said,  the 
introduction  of  new  arts,  and  the  improvement  of  familiar 
processes,  from  age  to  age,  has  obscured  this  great  law  of 


POLITICAL  ECONOMY,  Si 

agricultural  production.  So  much  so  that  many  writers, 
seeing  a  large  population  supported  in  comfort  upon  lands 
which  once  yielded  a  scanty  subsistence  to  a  small  popula- 
tion, have  been  disposed  to  deny  the  existence  of  the  law 
altogether.  But  this  is  an  error.  At  any  given  time,  the 
art  of  agriculture  being  as  it  is,  the  point  of  diminishing 
returns  is  liable  to  be  reached  by  the  increase  of  population. 
^N^or  can  it  be  reasonably  expected  that  improvements  and 
inventions  will  indefinitely  put-ofl'  that  point,  in  the  life  of 
any  community.  Sooner  or  later,  later  or  sooner,  according 
to  circumstances,  that  point  must  be  reached  ;  and  if  the 
number  of  laborers  thereafter  increases,  each  laborer  must 
be  content  with  a  smaller  product  :  that  is,  with  meaner 
subsistence. 

32.  Effect  of  Diminishing  Returns  in  Agriculture  upon 
the  Products  of  Manufacture. — The  law  that  has  been  de- 
scribed governs  all  the  productions  of  the  land.  How  does 
it  stand  related  to  the  products  of  manufacture?  I  answer: 
Only  so  far  as  the  materials  are  concerned.  All  these  are 
derived,  more  or  less  directly,  from  the  land  ;  and  the  cost 
of  producing  them,  or  their  price  in  the  market,  inevitably 
feels  the  influence  of  the  law  of  diminishing  returns  in 
agriculture.  But  all  kinds  of  manufacture  do  not  employ 
the  siime  amount  of  materials  derived  from  the  soil,  for  a 
given  amount  of  labor  and  capital ;  and,  as  the  efficiency 
of  labor  and  the  efficiency  of  capital  are  not  subject  to  the 
same  law,  it  follows  that  different  industries  may  be  differ- 
ently affected.  The  influence  of  this  cause  may  be  very 
great  in  one  branch  of  industry,  while  in  another  it  is  so 
slight  as  to  be  scarcely  worthy  of  notice.  For  example, 
iron  ore  and  coal  are  products  of  the  land,  and  conse- 
quently subject  to  this  law.  The  greater  the  quantities 
required,  the  deeper  into  the  earth's  crust  must  mining 
operations  be   carried,  the  larger  the  amount  of  labor  in- 


32  POLITICAL  ECONOMY. 

volved  in  getting  out  a  ton  of  either.  Now,  pig-iron  is  a 
product  of  iron  and  coal,  treated  by  labor,  aided  by  capital, 
in  a  way  which  we  shall  hereafter  be  called  to  note.  A 
large  increase  in  the  cost  of  coal  and  iron  ore  will  cause  a 
large  increase  in  the  cost  of  pig-iron.  That  increase,  how- 
ever, will  not  be  so  large,  proportionally,  in  the  latter  as  in 
the  former  case.  The  cost  of  the  ore  and  coal  required  to 
make  a  ton  of  pig-iron  may  have  been  enhanced  from  |G  to 
17  ;  but,  if  the  manufacturer  of  pig-iron  can  now  sell  his 
product  for  113,  instead  of  ^12,  as  before,  he  will  make 
himself  good  for  the  additional  dollar  which  the  coal  and 
the  iron  ore  have  cost.  In  this  case,  the  increase  in  the 
cost  of  the  coal  and  the  iron  ore,  due  to  the  principle  of 
diminishing  returns,  has  been  one-sixth  ;  while,  in  the  case 
of  pig-iron,  it  has  been  only  one-twelfth. 

33.  Apply  More  Labor  Still. — Again,  wrought-iron,  in  a 
great  variety  of  forms  and  for  many  uses,  is  a  product  of 
pig-iron  and  coal,  treated  by  human  labor,  aided  by  capital, 
as  before.  A  ton  of  pig-iron,  worth  |13,  might  be  worked 
up  into  hardware  of  many  kinds,  a  part  being  worth  30 
dollars  a  ton  ;  other  portions,  50,  75  and  100  dollars  ;  other 
portions  still,  to  which  more  labor  and  capital  had  been  ap- 
plied, 200  or  300  dollars  ;  other  portions  still,  i.e.  fine  cut- 
lery, watch  springs  and  surgical  aud  philosophical  instru- 
ments, being  worth  500  or  1000  dollars  a  ton.  Now,  the 
reader  will  observe  that,  all  through  this  jjrocess,  it  is  only 
the  increased  cost  of  the  original  coal  and  iron  ore,  and  of 
the  small  additional  amount  of  coal  or  charcoal,  for  the 
shaping,  welding  or  tempering  heat  required,  which  is  due 
to  the  principle  of  diminishing  returns.  The  same  cause 
which  would  double  the  cost  of  pig-iron,  might  increase  the 
cost  of  knives  and  watch-sjirings  very  slightly. 

Again,  if  it  became  necessary  to  cultivate  poorer  fields,  or 
to  raise  larger  crops  from  the  same  fields,  in  order  to  supply 


POLITICAL  ECONOMY.  33 

the  community  with  cotton,  and  the  price  of  cotton  were 
thereby  increased  from  ten  cents  to  twelve,  a  pound,  this 
would  have  a  great  effect  upon  the  cost  of  coarse  cotton 
cloth,  but  a  comparatively  small  effect  upon  the  finer  pro- 
ducts, such  as  thread  and  lace.  If  the  price  of  lumbei" 
were  to  be  doubled  by  the  necessity  of  going  to  distant 
forests,  or  by  the  necessity  of  resorting  to  smaller  trees, 
the  larger  ones  having  been  cut  away,  this  would  have  an 
immense  effect  upon  the  cost  of  a  rough  shed  ;  a  smaller 
effect  upon  the  cost  of  a  neat  cottage,  where  the  boards 
should  be  planed  and  matched  and  fitted  nicely  ;  a  much 
smaller  effect  upon  the  cost  of  an  elegant  mansion,  where  a 
great  deal  of  labor  is  expended  in  carving  and  turning  and 
polishing  the  material. 


CHAPTER  VI. 
LABOR. 

34.  Labor,  as  an  Agent  of  Production  — It  was  said  that 
the  three  primary  agents  of  production  are  land,  labor  and 
capital.  We  have  now  spoken,  so  far  as  is  at  present  neces- 
sary, of  land.     Let  ns  next  speak  of  labor. 

This  term  is  applied  to  the  efforts  and  sacrifices  of  human 
bfeings  directed  towards  the  production  of  wealth,  i.e.,  the 
creation  of  values.  Mere  muscular  exertion  is  not  labor,  in 
the  sense  of  the  political  economist,  since  the  muscular 
power  of  dumb  animals  belongs  to  capital.  It  is  even  a 
question  whether  the  work  of  slaves  should  be  treated  as 
labor,  in  the  economic  sense.  Some  writers  have  insisted,  not 
without  reason,  that,  so  long  as  human  beings  are  bred  and 
reared  in  servitude,  made  to  work  without  their  own  con- 
sent, and  not  allowed  to  receive  the  reward  of  their  own  ex- 
ertions, whatever  they  do  in  the  production  of  wealth  comes 
under  the  law  of  capital,  as  we  shall  hereafter  see  it.  The 
question  is  one  which  is  not  important  to  discuss. 

Not  even  all  the  muscular  exertions  of  free  human  beings 
belong  under  the  head  of  labor.  As  severe  efforts  are  often 
put  forth  in  sport  or  play  or  for  the  admiration  of  bystanders, 
as  for  the  production  of  wealth.  The  sacrifices  to  which  a 
boat's  crew  of  young  men  submit,  the  exertions  which  they 
make  during  months  of  training,  as  well  as  the  tremendous 
physical  struggle  to  which  these  lead,  are  not  labor,  in  the 
economic  sense.  On  the  other  hand,  the  work  of  the  pro- 
fessional ball-team,  whether  in  practice  or  in  their  occa- 

34 


POLITICAL  ECONOMY.  35 

sional  contests,  is  labor,  in  the  full  economic  sense,  because 
it  is  directed  towards  the  creation  of  values.  Those  sacri- 
fices are  submitted  to,  those  exertions  made,  in  order  to  draw 
to  their  games  hundreds  or  thousands  of  spectators,  each  of 
whom  pays  his  shilling,  or  his  two  shillings,  for  the  pleasure 
of  seeing  an  exhibition  of  high  skill  and  great  physical 
force. 

35.  What  Does  "  a  Day's  Labor  "  Mean? — We  have,  in  the 
last  chapter,  spoken  of  the  application  to  land  of  certain 
"amounts  of  labor"  for  the  production  of  wealth.  It  is, 
however,  difficult  to  apply  a  universal  measure  to  the 
quantity  of  labor  made  use  of  in  any  given  case.  When  we 
speak  of  a  "  horse-power,"  we  mean  the  force  necessary  to 
raise  33,000  pounds  one  foot  upward  into  the  air  in  one 
minute  of  time ;  and,  inasmuch  as  the  downward  attrac- 
tion of  gravity  is  substantially  the  same  on  all  parts  of 
the  surface  of  the  earth  inhabited  by  man,  a  "  horse-power  " 
means  the  same  thing,  the  world  over.  But  a  day's  labor  * 
means  a  very  different  thing  in  one  of  the  Pacific  Islands 
from  what  it  does  in  Bengal.  It  means  a  very  different 
thing  still,  in  Russia.  It  means  a  very  different  thing  in 
Russia  from  what  it  does  in  England. 

There  is,  then,  no  absolute,  single  measure  by  which  we 
can  determine  and  express  '''  amounts  of  labor."  But  we  can 
bring  into  comparison  men  of  the  same  country, -men  even 
of  different  countries,  under  conditions,  as  to  land  and  as 
to  tools  and  machines,  nearly  enough  alike  to  enable  us  to 
say  that  very  wide  differences,  as  to  labor-power,  exist 
between  individuals  of  the  same  country,  and  between  the 
men  of  one  country,  taken  as  a  whole,  and  the  men  of 

*  In  his  history  of  England,  Lord  Mahon  [Earl  Stanhope]  states 
tliat  an  English  woodsawyer  would  do  as  much  work  in  one  day  as 
thirty-two  Bengalees,  at  the  same  business,  under  precisely  the  same 
circumstances. 


36  POLITICAL  ECONOMl. 

other  countries.     These  differences  let  us  now  try  to  ex- 
plain. 

Causes  of  Diffekences  ik  Industrial  Efficiency. 

These  causes  are  very  numerous  ;  but  the  chief  may  be 
mentioned  as  follows  : 

36.  (I)  Differences  in  Inherited  Health  and  Strength. — 
No  matter  how  it  came  about,  whether  as  the  result  of  the 
influences  of  climate,  or  as  the  result  of  other  causes  work- 
ing in  the  past,  it  is  true  that  the  men  living,  at  any  given 
time,  in  one  country  were  born  with  a  greater  capacity  for 
exertion  than  those  of  another  country.  Even  if  supplied 
during  infancy  and  childhood  with  the  same  food,  and 
brought  up  in  every  respect  under  similar  conditions,  the 
men  of  the  former  country  would,  at  15  or  25  or  40  years 
of  age,  have  a  greater  lifting  or  pulling  strength,  and  would 
be  capable  of  far  more  prolonged  exertion,  than  the  men  of 
the  other  country.  In  every  community  there  is  a  certain 
capability  of  labor  inherited  from  the  past ;  and  that  in- 
heritance varies  widely  in  different  countries  and  in  differ- 
ent races.  In  this  respect  compare  the  South  Sea  Islander 
or  the  Bengalee  with  the  Englishman  or  the  Irishman. 

37.  (II)  Food. — Between  individuals  of  the  same  nation 
and  the  men  of  different  nations,  who  have  inherited  the 
same  capability  of  labor,  great  differences  as  to  labor-power 
would  be  caused  by  differences  in  the  food-supply,  both 
during  the  period  of  youth  and  growth,  and  during  the 
period  of  active  exertion.  Take  three  men  of  the  same 
natural  powers,  and  feed  one  of  them  on  the  small  amounts 
of  rice  which  make  up  the  diet  of  an  East  Indian;  the 
second  on  the  scanty  supply  of  potatoes  and  buttermilk 
which  is  all  the  Irish  peasant  at  home  can  hope  to  receive; 
the  third  on  the  great  variety  of  vegetable  and  animal  food 


POLITICAL  EGOJVOMT.  37 

which  makes  np  the  subsistence  of  a  North  American  far- 
mer, and  you  will  have  widely  different  results,  in  the  three 
cases,  as  to  the  capability  of  severe  and  sustained  exertions. 
To  a  very  great  extent,  what  a  working  man  can  do,  in  a 
given  time,  depends  upon  the  quantity  and  the  quality  of 
food  he  has  to  eat.  To  neglect  this  consideration,  in  speak- 
ing of  the  labor  of  different  countries,  and  often  of  different 
classes  in  the  same  country,  is  to  make  a  great  blunder. 

38.  Food  is  the  Fuel  of  the  Human  Engine. — The  food 
which  is  supplied  to  the  laborer,  to  enable  him  to  work, 
bears  much  the  same  relation  to  his  efficiency,  or  work- 
power,  as  the  fuel  put  into  the  furnace,  beneath  the  boiler, 
bears  to  the  efficiency  of  the  engine.  The  stomach  is,  in  a 
high  sense,  the  furnace  of  the  human  machine.  It  is  there 
all  the  power  is  generated  which  is  to  move  the  limbs  in 
severe  and  protracted  exertions  for  the  production  of 
wealth,  just  as  the  engine  derives  all  the  power  it  has  to 
drive  the  wheels,  which  move  the  machinery  of  the  mill, 
from  the  combustion  of  fuel  in  the  furnace..  Up  to  a  cer- 
tain point,  the  more  fuel  is  fed  to  a  furnace,  the  more 
steam  power  is  created.  Likewise,  up  to  a  certain  point, 
the  more  food  is  given  the  laborer,  the  more  labor  power  is 
developed. 

Not  only  is  it  true  that,  up  to  a  certain  point,  labor  power 
increases  with  the  increase  of  food;  but  labor  power  in- 
creases at  a  more  rapid  rate  than  does  the  food  itself.  It  is 
the  same  with  the  fuel  in  the  furnace.  If  we  suppose  that 
a  furnace,  of  a  certain  size  and  pattern,  ]-equired,  for  its 
best  working,  100  pounds  of  coal,  it  would  by  no  means 
follow  that  50  pounds  would  do  half  as  much  work  ;  it 
might  do  only  one-third  as  much,  or  one-quarter  as  much. 
This,  clearly,  would  be  an  uneconomical  use  of  the  machin- 
ery. If,  again,  the  supply  of  coal  were  to  be  reduced  to 
^5  pounds,  the  engine  might  not  do  enough  Avork  to  make 

458265 


38  POLITICAL  ECONOMY. 

it  worth  while  to  use  it  at  all.  This  would  be  a  very  uii- 
economical  use  of  the  machinery.  If  we  suppose  the 
amount  of  solid  food,  of  a  certain  standard,  which  was  re- 
quired to  keep  an  able-bodied  man  in  condition  to  do  his 
best  work,  was  250  oz.  a  week,  it  would  not  be  true  that 
with  200  oz.  he  would  do  four-fifths  as  much  ;  with  150  oz., 
three-fifths  as  much  ;  with  100  oz.,  two-fifths  as  much.  On 
the  contrary,  the  first  hundred  ounces  might  only  suffice 
to  keep  him  alive,  doing  no  work  at  all.  Tlie  next  25 
oz.  might  enable  him  to  crawl  feebly  about,  working  with 
little  energy  and  through  short  periods  of  time.  With  150 
oz.,  he  might  easily  do  twice  as  much  work  as  with  125 
oz.  ;  with  200  oz.  twice  as  much  as  witli  150. 

Hence  it  will  appear  that  it  is  a  very  uneconomical  use  of 
food  to  give  it  in  such  small  amounts  as  100  or  125  or  150 
oz.  per  week.  Every  additional  ounce  of  food,  up  to  a 
certain  point,  creates  more  work  power  than  any  of  the 
ounces  which  preceded. 

39.  Is  there  any  Limit? — There  is,  of  course,  a  limit  to 
the  increase  of  labor  power  through  increase  of  food. 
After  a  certain  point,  the  advantage  resulting  from  a  more 
liberal  supply  might  be  small ;  at  a  still  further  point,  it 
might  cease  to  be  an  advantage  at  all ;  a  little  later,  the 
point  might  be  reached  where  a  still  further  increase  of 
food  might  be  positively  deleterious,  leading  to  physiologi- 
cal obstruction  and  disease.  These  successive  points  change 
according  to  the  constitution  and  habits  of  individuals, 
according  to  climate,  according  to  occupation,  according  to 
circumstances  innumerable.  But  for  each  person,  there  is, 
at  any  time,  an  economic  maximum  of  food,  the  consump- 
tioji  of  which  will,  in  his  case,  yield  the  largest  amount  of 
working  power,  for  each  unit  of  food.  If  more  food  be 
taken  into  the  system,  there  may  be  a  still  further  creation 
of  laboring  power ;    but  the  gain  will   be  less  than   pro- 


POLITICAL  ECONOMY.  39 

portional.  If  less  tlian  this  economic  maximnm  of  food 
be  given,  tlie  amount  of  working  power  developed  will  not 
only  be  less,  but  less  for  each  unit  of  food.  As  the  supply 
is  reduced,  this  loss  of  labor-force  goes  on  at  a  ratio  which 
is  much  more  rapid  than  the  ratio  of  the  reduction  of  food. 
Wlien  a  certain  point  has  been  reached,  the  amount  of 
labor  power  generated  by  each  unit  of  food  is  so  small, 
that,  speaking  only  with  reference  to  the  production  of 
wealth,  we  may  say  that  the  food  so  given  is  wasted.  Were 
it  not  human  beings  but  dumb  animals  that  were  concerned, 
no  one  would  hesitate  to  say  that  it  would  be  more  profit- 
able to  kill  them  than  to  feed  them  so  low. 

40.  How  Laborers  are  Underfed  in  the  Old  Countries. — 
It  is  very  difficult  for  an  American,  brought  up  in  the 
midst  of  plenty,  in  a  land  where  the  point  of  diminishing 
returns  has  not  been  reached,  to  realize  how  mean  and  poor 
is  the  subsistence  of  a  great  part  of  the  inhabitants  of  the 
world.  Except  in  a  few  favored  countries,  nearly  all  of 
them,  like  our  own,  "  new  countries,"  and  except  among 
the  most  favored  classes  in  a  few  other  countries,  the 
laborers  of  the  world  receive  far  less  than  the  economic 
maximum  of  food.  In  some  countries,  the  amount  of  food 
going  to  the  average  laborer  is  so  small  as  to  fairly  reach  the 
point  indicated  by  the  last  sentence  of  the  preceding  para- 
graph. As  a  matter  of  self-interest,  it  would  not  pay  to 
keep  horses  and  cattle  at  all,  unless  they  were  to  be  better 
fed  than  are  hundreds  of  millions  of  our  fellow-creatuies. 

The  miserably  inadequate  diet  of  the  people  of  China 
and  India,  keeping  them  all  the  time  on  the  very  verge  of 
famine,  is  so  familiar,  from  common  report,  as  not  to  re- 
quire to  be  dwelt  upon  here.  I  will  quote  a  few  facts  from 
official  reports  or  irom  the  writings  of  well-known  econo- 
mists, regarding  the  food  of  the  working  classes  in  some  of 
the  more  favored  countries  of  Europe, 


40  POLITICAL  ECONOMY. 

Of  the  industrial  classes  of  France,  Lord  Brabazon  Avrote, 
in  1872 :  ''  Many  a  French  factory  hand  has  never  anything 
better  for  his  breakfast  than  a  large  slice  of  common  sonr 
bread,  rubbed  over  with  an  onion  so  as  to  give  it  flavor."  At 
about  the  same  time,  Mr.  Locock  wrote,  from  the  Nether- 
lands :  ''  Meat  is  rarely  tasted  by  the  working  classes  in 
Holland,  It  forms  no  part  of  the  bill  of  fare,  either  for 
the  man  or  his  family."  From  Belgium  Mr.  Pakenham 
wrote:  '^ Very  many  have  for  their  entire  subsistence  but 
potatoes  with  a  little  grease,  brown  or  black  bread,  often 
bad,  and  for  their  drink  a  tincture  of  chiccory."  Now, 
France,  Holland  and  Belgium  are  not  among  the  worst  but 
among  the  best  countries  of  Europe,  industrially  speaking. 
If  we  cross  over  the  Channel  to  England,  which  is  the 
richest  country  of  Europe,  we  find,  even  there,  that  a  large 
portion  of  the  laboring  class  are  kept  below  the  economic 
limit  of  subsistence.  "  In  the  west  of  England,"  wrote 
Prof.  Fawcett,  about  1864,  'Mt  is  impossible  for  an  agri- 
cultural laborer  to  eat  meat  more  than  once  a  week."  *  Of 
the  peasants  of  Devonshire,  Canon  Girdlestone  wrote,  a  little 
later:  "The  laborer  breakfasts  on  tea-kettle  broth — hot 
water  poured  on  bread  and  flavored  with  onion — dines  on 
bread  and  hard  cheese  at  twopence  a  pound,  with  cider 
very  washy  and  sour;  and  sups  on  potatoes  or  cabbage 
greased  with  a  tiny  bit  of  fat  bacon.  He  seldom  more  than 
sees  or  smells  butcher's  meat." 

Bad  as  the  state  of  things  was  when  Prof.  Fawcett  iiud 
Canon  Girdlestone  wrote,  it  had  been  even  worse  in  the 


*  And  yet  Prof.  Fawcett  could  Avrite  that  "  it  is  physically  im- 
possible that  any  permanent  rise  in  wages  should  take  place  without 
corresponding  diminution  of  profits."  If  there  were  any  physical 
impossibility  in  the  case,  it  would  seem  to  be  the  impossibilit}^  that 
such  wretched  peasants  could  be  better  fed  without  adding  to  the 
profits  of  their  employers. 


POLITIGAL  ECONOMY.  41 

preceding  generation.  Tlie  poor  law  commissioners  of  1833 
reported,  that  at  that  time,  while  the  British  soldier  was 
receiving  168  oz.  of  food,  per  week,  according  to  a  certain 
standard,  and  even  the  public  pauper  was  receiving  151 
oz^,  the  agricultural  laborer  received  but  122  oz.  Now,  it 
goes  without  saying  that,  when  the  laborer,  toiling  from 
morning  to  night  in  the  field,  receives  a  smaller  amount  of 
nourishment  than  the  sense  of  public  decency  will  allow  to 
be  given  to  paupers,  the  laborer  is  underfed,  in  the  sense 
that  he  will  and  must  underwork. 

The  reader  will  naturally  ask  why,  if  laborers  receiving 
more  food  would  do  more  and  better  work,  employers  do 
not  furnish  more  ample  subsistence.  This  important  ques- 
tion can  onlj^  be  answered  when  Ave  reach  the  chapters  on 
distribution. 

41.  (Ill)  Sanitary  Conditions. — In  order  to  secure  the 
laborer's  greatest  efficiency,  it  is  not  only  necessary  that  he 
should  have  an  abundance  of  good  food,  but  that  there 
should  be  an  ample  supply  of  fresh  air.  After  the  food, 
which  has  been  taken  into  the  stomach,  has  been  digested 
and  turned  into  blood,  that  blood  must  pass  into  the  lungs 
and  be  there  purified.  Carbonic  acid  is  to  be  thrown  off, 
and  oxygen  taken  in  from  the  air.  But  if  the  oxygen  has 
been  used  up  and  the  air  is  already  loaded  with  carbonic 
acid,  that  purification  cannot  take  place.  The  human 
being,  so  situated,  becomes  heavy  and  dull,  his  blood  be- 
comes foul,  and  the  tissues  tend  to  corruption.  In  such  a 
case,  a  large  amount  of  food  taken  into  the  system  may 
even  become  a  source  of  weakness  and  ill-health. 

Moreover,  in  close  and  unventilated  rooms  are  likely  to 
be  found  the  germs  of  active  diseases  which  shorten  life  or 
permanently  impair  physical  activity.  So  great  is  the  effect 
of  this  cause  that  we  have  here  the  explanation  of  no  small 
part  of  the  differences  of  working  force  which  are  found 


42  POLITICAL  ECONOMY. 

among  the  laborers  iu  different  countries.  The  first  great 
prison  reformer,  John  Howard,  shocked  the  world  with  the 
revelations  which  he  made  of  the  way  in  which  tlie  convict 
classes  were  housed  ;  yet  Mr.  Edwin  Chadwick  could  say,  in 
1842:  "More  filth,  worse  physical  suffering  and  moral  dis- 
order  than  Howard  describes  as  affecting  the  prisoners,  are 
to  be  found  among  the  cellar  population  of  the  working 
people  of  Liverpool,  Manchester  and  Leeds,  and  in  large 
portions  of  the  metropolis." 

Even  the  agricultural  population  was  not  much  better 
provided  for.  The  following  is  a  description  given  by  the 
poor  law  commissioners,  of  the  cottages  of  the  county  of 
Durham:  "The  chimneys  have  lost  half  their  original 
height,  and  lean  on  the  roof  with  fearful  gravitation.  The 
rafters  are  evidently  rotten  and  displaced,  and  the  thatch, 
yawning  to  admit  the  wind  and  wet  in  some  parts,  and  in 
all  parts  utterly  unfit  for  its  original  purpose  of  giving  pro- 
tection from  the  weather,  looks  more  like  the  top  of  a 
dunghill  than  a  cottage.  Such  is  the  exterior ;  and  when 
the  hind  comes  to  take  j)ossession,  he  finds  it  no  better 
than  a  shed.  The  wet,  if  it  happens  to  rain,  is  making  a 
puddle  on  the  earth  floor.  .  .  ,  They  have  no  byre  for 
their  cows,  nor  sties  for  their  pigs ;  no  pumps  or  wells ; 
nothing  to  promote  cleanliness  or  comfort.  The  average 
size  of  these  sheds  is  about  24  by  16.  They  are  dark  and 
unwholesome  ;  the  windows  do  not  open,  and  many  of  them 
are  not  larger  than  20  inches  by  16  ;  and  into  this  place  are 
crowded  8,  10,  or  even  12  persons." 

In  Scotland  the  case  was  scarcely  better.  Sir  James 
Caird  stated,  that,  in  1861,  one-third  of  the  people  lived  in 
houses  of  one  room  only  ;  another  third,  in  houses  of  two 
rooms  only.  Prof.  Gardiner,  writing  of  Glasgow,  said: 
"Out  of  a  population  of  85,000  householders,  30,000  or 
35,000  belonged  to  a  class  who  are  most  dangerous  in  a 


POLITICAL  ECONOMY.  43 

sanitary  point  of  view.''  The  dwellings  of  Ireland  were 
even  worse.  Mr.  Inglis  thus  describes  the  city  liomes  of 
1834:  ''Hovels,  cellars,  mere  dark  dens:  damp,  filthy,  un- 
wholesome places,  into  which  we  should  not,  in  England, 
put  any  domestic  animal." 

If  it  is  in  homes  such  as  have  been  described,  that  chil- 
dren gi'ow  to  maturity  and  get  the  size  and  strength  which 
are  to  determine  their  quality  as  workers,  what  wonder  that 
they  become  stunted,  weazen  and  deformed!  If  it  is  in 
liomes  like  these  tliat  laboring  men  have  to  seek  repose  and 
refreshnient,  after  the  day's  work ;  that  they  breathe  the 
air  which  is  to  oxidize  their  blood,  and  eat  and  digest  the 
food  on  which  to-morrow's  Avork  is  to  be  done,  what  won- 
der that  the  blood  of  manhood  becomes  foul  and  lethargic, 
the  nerves  unstrung,  the  sight  weakened  or  distorted,  the 
whole  tone  of  life  and  of  labor  depressed ! 

42.  (IV)  Intelligence. — The  three  causes  we  have  thus 
far  adduced,  are  physical,  affecting  the  muscular  power  and 
endurance  of  the  laborer.  The  cause  now  mentioned  is 
mental.  It  is  the  laborer's  intelligence  which  enables  him 
to  apply  his  bodily  force  to  his  work,  not  only  with  effect, 
but  with  the  greatest  effect.  How  great  a  factor  in  in- 
dustrial efficiency  the  ge7ieral  intelligence  of  the  laborer 
may  be,  is  only  seen  when  we  consider  the  several  elements 
which  make  up  that  efficiency. 

{a)  The  intelligent  laborer  requires  a  much  shorter  ap- 
prenticeship ;  less  of  technical  instruction.  It  is  said  that 
the  recruits  in  the  British  army  who  can  read  and  write 
learn  their  drill  in  one  half  the  time  taken  by  recruits  who 
cannot  read  and  write. 

{b)  The  intelligent  laborer  requires  far  less  superinteud- 
ence.  Superintendence  is  alwa3-s  costly.  If  an  overseer  is 
required  for  every  ten  men  engaged  on  a  piece  of  work,  the 
product   must  pay  for  the  time  not  of  ten   men,  but  of 


44  POLITICAL  ECONOMY. 

eleven.  If  the  overseer,  as  is  most  likely,  gets  twice  tlie 
wages  of  a  common  laborer,  then  the  product  must  pay  for 
the  time  and  labor  of  twelve  men.  The  employer  could 
just  as  Avell  afford  to  pay  his  men  20  per  cent,  more,  could 
he  dispense  with  tlie  overseer. 

(c)  The  intelligent  laborer  is  far  less  wasteful  of  mate- 
rial. No  product  can  be  obtained  by  labor,  even  in  agri- 
culture, without  the  sacrifice  of  pre-existing  wealth.  AVould 
you  raise  a  crop  of  wheat  ?  a  bushel  must  be  sown  for  every 
six  or  eight  bushels  to  be  reaped ;  and  with  it,  perhaps, 
large  quantities  of  costly  manures.  In  mechanical  indus- 
tries, the  value  of  materials  used  in  manufacture  is  often  as 
great  as  the  amount  of  wages  paid.  Frequently  the  value 
of  materials  consumed  is  greater,  sometimes  much  greater, 
than  the  amount  paid  in  wages:  in  some  cases,  twice  as 
much,  in  others,  five  times  as  much.  If,  then,  an  unin- 
telligent laborer  is  going  to  waste,  or  spoil,  or  in  any  degree 
injure,  the  materials  given  him,  he  will  soon  do  more  harm 
than  his  labor  is  worth. 

{d)  The  intelligent  laborer  can  use  delicate  and  intricate 
machinery  to  advantage,  and  he  alone  can.  In  most  coun- 
tries no  machines  are  used  in  agriculture,  but  only  the 
simplest  and  coarsest  of  hand  tools.  This  is  not,  mainly, 
because  the  people  are  too  poor  to  have  machines,  but  be- 
cause they  are  too  ignorant  to  use  them.  Were  the  best 
peasant  out  of  twenty  to  be  given  a  mowing  machine,  or  a 
reaper,  he  would  bring  it  so  quickly  to  wreck  and  ruin  as 
to  offset  the  value  of  his  whole  summer's  work.  The 
United  States  is,  indeed,  the  only  large  country  in  wMch 
the  ordinary  agricultural  laborer  can  be  trusted  with  com- 
plicated machinery. 

In  manufactures,  the  difference  wrought  by  intelligence 
or  want  of  intelligence  on  the  part  of  the  working  classes  is 
even  greater.     In  some  parts  of  Eastern  Europe,  even  the 


POLITICAL  EGONOMf.  45 

primary  *'  mechanical  powers  "  are  not  made  use  of.  If  the 
inhabitants  wish  to  lift  a  weight,  thev  do  it  by  main  force, 
instead  of  using  the  pulley,  the  windlass  or  the  inclined 
plane.  As  to  the  complicated  and  expensive  machines  em- 
ployed in  factories,  the  ordinary  European  peasant  has  no 
fitness  whatever  for  dealing  with  them. 

43.  (V)  Cheerfulness  and  Hopefulness  in  Labor. — The 
cause  now  adduced  is  moral,  affecting  the  will,  which  con- 
trols alike  the  physical  and  the  mental  powers  of  the  la- 
borer. Since  severe  and  sustained  exertions  are  naturally 
irksome,*  cheerfulness  and  hopefulness  in  labor  must  grow 
out  of  the  self-respect  and  social  ambition  of  the  laborer 
and  his  personal  interest  in  the  result  of  his  work.  It  is 
here,  that  is,  in  the  moral  elements  of  industry,  that  we 
find  the  most  potent  cause  of  differences  in  efficiency. 
Cheerfulness  and  hopefulness  in  the  laborer  become  the 
spring  of  exertions,  in  comparison  with  which  the  brute 
strength  of  the  slave  is  but  weakness.  Chattel  labor  is 
always  and  everywhere  ineffective  and  wasteful,  because  it 
has  not  its  reward.  As  Adam  Smith  said,  a  person  who 
can  acquire  no  property,  and  does  not  even  own  himself, 
can  have  no  other  interest  than  to  eat  as  much  and  work  as 
little  as  possible.  Ko  matter  how  complete  the  power  of 
the  master  over  the  person  and  over  the  life,  he  cannot 
command  all  the  faculties  of  his  slave.  The  slave  may  be 
made  to  work,  but  he  cannot  be  made  to  think  ;  he  may  be 
made  to  work,  but  he  cannot  be  kept  from  waste  ;  to  work, 
indeed,  but  not  with  energy. 

*  Yet  in  this  respect  the  races  of  men  differ  widelJ^  It  is  one  of 
the  fruits  of  culture  that  the  operaliou  of  the  mental  and  physical 
powers  becomes,  every  generation,  less  and  less  irksome,  until,  with 
the  men  of  the  best  brain  endowment,  effort  becomes  actually  pleas- 
urable. But,  for  the  vast  majority  of  mankind,  in  their  present 
stage  of  development,  the  statement  in  the  text  needs  but  slight 
qualifications. 


46  POLITICAL  ECONOMY. 

Energy  is  not  to  be  called  forth  by  threats  and  blows, 
but  by  hope,  ambition  and  aspu-ation.  The  whip  cannot 
reach  the  parts  of  tlie  man  where  lie  the  real  springs  of 
action.  The  slave  cannot,  if  he  would,  work  as  if  he  were  a 
freeman.  The  nervous  force  is  only  in  a  small  degree  under 
the  control  of  the  conscious  will.  It  is  only  when  some 
passion  of  the  higher  nature,  love,  gratitude  or  hope,  is 
awakened,  that  a  man  can  render  his  best  service. 

44.  Unprofitableness  of  Slave  Labor. — Had  it  not  been 
for  the  impotence  of  the  lash,  the  nations  would  have  risen 
far  more  slowly  from  the  almost  universal  condition  of 
slavery.  The  slave  has  always  been  able  to  make  it  for  his 
master's  interest  to  sell  him  freedom.  He  could  always 
afford  to  pay  more  than  any  one  else  could  make  out  of  him. 
Hence,  the  former  slave-states  of  the  American  union, 
building  their  political  and  social  institutions  upon  slavery, 
as  the  corner-stone,  had  to  forbid  or  restrict  the  exercise  of 
manumission.  Even  with  the  little  the  black  could  appre- 
hend of  the  privileges  of  freedom,  even  with  his  feeble  hopes 
and  aspirations,  condemned  by  his  color  to  social  exclusion, 
he  could  always  buy  himself,  if  allowed  to  do  so.  This  un- 
profitableness of  slave  or  bond  labor,  it  was,  which  prepared 
the  way  for  those  great  changes  which  transformed  whole 
populations  of  slaves  or  serfs  into  nations  of  freemen. 

Among  free  laborers,  great  differences  in  industrial  effi- 
ciency are  found  to  exist,  according  as  the  reward  of  labor 
is  near  and  certain,  or  distant  and  doubtful.  It  is  in  the 
case  of  the  proprietor  of  land,  under  just  and  equal  laws, 
that  the  incentives  to  industry  are  found  most  acute.  He 
knows  that  every  stroke  of  his  arm  is  creating  value,  which 
he,  himself,  and  his  children  after  him,  will  enjoy  to  the 
full.  Neither  bell  nor  whip  is  needed  to  drive  him  afield. 
He  goes  gladly  to  his  work,  at  the  first  flush  of  morning  ; 
and  the  setting  of  the  sun  finds  him  still  hoeing  the  corn. 


POLITICAL  eOonomt:         .  41' 

or  tying  up  tlie  vines,  or  tinkering  the  sheds,  or  caring  for 
the  cattle.  Long  as  is  his  work-day,  he  is  not  worn  out  at 
the  close.  The  waste  of  muscular  force  is,  in  such  labor,  at 
its  minimum.  Nervous  exhaustion  comes  late  and  comes 
slowly  to  him  who  sees  his  reward  manifestly  growing 
under  his  hands. 

It  is  not  alone  active  exertion  which  is  called  out  by  the 
proprietorship  of  land.  Of  even  more  consequence  is  the 
care  which  is  taken  to  prevent  injury  and  waste ;  to  keep 
tools  and  implements  in  order ;  to  save  the  growing  vines 
and  plants  from  their  thousand  enemies ;  to  keep  the  live 
stock  at  their  best ;  to  store  and  house  the  gathered  crops. 

45.  Industry  and  Frugality  Awakened  by  Ownership. — 
The  familiar  examples  of  industry  and  frugality,  are  those 
afforded  by  the  peasants  of  France,  Holland  and  Switzer- 
land, in  the  cultivation  and  care  of  their  little  estates.  A 
hundred  3'ears  ago  an  eminent  traveller,  Arthur  Young, 
wrote,  of  a  certain  district  in  France  :  "  An  activity  has 
been  here  that  has  swept  away  all  difficulties  before  it  and 
has  clothed  the  very  rocks  with  verdure.  It  would  be  a 
disgrace  to  common  sense  to  ask  the  cause:  the  enjoyment 
of  property  must  have  done  it.  Give  a  man  the  secure 
possession  of  a  bleak  rock  and  he  will  turn  it  into  a  garden : 
give  him  a  nine  years'  lease  of  a  garden,  and  he  will  turn  it 
into  a  desert."  Many  of  the  vineyards  which  greet  the  eye 
of  the  traveller,  along  the  Rhine,  have  for  their  entire  soil 
earth  which  has  been  carried,  in  baskets,  up  the  mountain 
side  by  the  laborious  peasantry.  "  When  I  used  to  open 
my  casement,"  wrote  Mr.  Inglis  of  his  stay  in  Zurich,  "be- 
tween four  and  five  in  the  morning,  to  look  out  on  the  lake 
and  the  distant  Alps,  I  saw  the  laborer  in  the  fields ;  and 
when  I  returned  from  an  evening  walk,  long  after  sunset, 
there  was  the  laborei^  mowing  his  grass  or  tymg  up  his 
vines." 


48  POLITICAL  ECONOMY. 

I  said  that  it  was  the  proprietor  of  land,  under  just  and 
equal  laws,  who  exhibited,  in  the  highest  degree,  industry 
and  care  for  the  preservation  of  wealth.  We  have  two  very 
striking  examples  of  the  impairment  of  these  qualities  by 
unfair  conditions  or  laws.  It  would  certainly  make  any 
one  laugh,  to-day,  to  hear  the  Scotch  people  spoken  of  as 
indolent.  Their  energy  and  activity  has  been  shown  in  all 
the  corners  of  the  earth  ;  yet,  a  hundred  and  thirty  or  forty 
years  ago,  "^the  lazy  Scotch  "  were  a  proverb  throughout 
Europe  for  negligence  and  indolence.  This  was  because  of 
the  system  of  short  leases,  then  almost  universal  in  Scot- 
land, which  robbed  the  laborer  of  a  greater  part  of  the 
proper  fruit  of  his  exertions.  A  single  act  of  wise  legisla- 
tion, providing  for  long  and  secure  leases,  changed  all  this, 
and  brought  out  the  real  energy  and  spirit  which  are  innate 
in  the  Scottish  character. 

Only  half  as  long  ago,  the  Irish  were  known,  in  their  own 
country,  as  hopelessly  lazy.  This  was  universally  believed 
to  be  a  part  of  their  character.  It  was,  in  fact,  the  creation 
of  unjust  laws  and  a  bad  system  of  land  tenure.  When  the 
Irish,  emigrating  under  the  pressure  of  famine,  found 
themselves  upon  new  lands,  under  strange  suns,  having  an 
equal  chance  with  others,  they  soon  showed  themselves  the 
equals  of  any  in  hard  and  patient  labor. 

46.  The  Hireling. — We  have  thus  far  been  speaking  of 
men  working  for  themselves,  and  entitled  to  receive  all  the 
fruits  of  their  labor.  Whenever  men  take  the  position  of 
hired  laborers,  working  for  wages,  some  part  of  this  hope- 
fulness and  cheerfulness  in  labor,  which  we  have  seen  to  be 
the  fruitful  source  of  strenuous  exertions,  is,  by  the  very 
nature  of  the  case,  lost.  If  a  man  working  at  wages,  for 
another,  does  not  put  into  his  work  all  the  energy  he  would 
if  working  for  himself,  if  he  fails  to  exercise  all  the  care  of 
tools,  implements,  materials  and  product  which  he  would 


POLITICAL  ECONOMY.  49 

were  tliey  liis  own,  this  is  not  wholly  a  matter  of  blame. 
AVe  have  already  seen  that  not  all  the  springs  of  activity  are 
luuler  the  control  of  the  conscious  will ;  and  it  is  scarcely 
possible  for  any  man,  no  matter  how  sincere  his  intentions, 
to  do  all  for  another  which  he  would  for  himself.  At 
the  same  time,  it  must  be  said  that  there  is  a  great  dif- 
ference among  individuals  of  the  same  community,  and 
also  among  the  men  of  different  nations  and  races,  in  re- 
gard to  the  capability  of  doing  the  work  of  others,  as  if  it 
were  one's  own.  There  are  men,  there  are  even  nations, 
that  have  this  capability  in  a  high  degree. 

It  need  not  be  said  that  these  are  the  nobler  nations ; 
and  that  the  spirit  of  fidelity  and  devotion  to  duty,  thus 
carried  into  hired  labor,  has  also  its  political  reward,  mak- 
ing these  nations  more  strong  and  peaceful  at  home  and 
more  powerful  abroad,  than  those  which  have  a  lower 
capability,  in  the  direction  of  which  we  have  been  speak 
mg. 


CHAPTER  VII. 

LABOR  CONTINUED-THE  ORGANIZATION  OF 
INDUSTRY. 

47,  The  Division  of  Labor. — We  have  thus  far  spoken  ot 
the  causes  which  produce  differences  in  working  force,  or 
labor  power,  among  individuals.  We  are  now  to  consider 
certain  causes  which  give  to  large  bodies  of  laborers,  whether 
individually  weak  or  individually  strong,  a  greatly  increased 
power  of  production.  These  may  be  embraced  under  trie 
title,  organization  of  industry,  though  that  term  is  not 
altogether  satisfactory.  Let  us  first  speak  of  what  is  called 
the  Division  of  Labor. 

In  a  very  primitive  condition  of  industrial  society,  each 
man  does,  as  a  rule,  what  every  other  man  does.  The 
community  is,  indeed,  divided  on  the  line  of  sex,  the 
women  taking  up  certain  duties  which  are  considered  more 
suitable  to  their  strength  and  intelligence  ;  but  the  men  are 
all  herdsmen,  or  all  hunters,  or  all  fishermen,  or  all  tillers 
of  the  soil,  according  to  the  circumstances  in  which  the 
tribe  is  placed.  Each  man's  work  is  like  every  other  man's, 
except  so  far  as  natural  strength,  skill,  and  courage  enter 
to  make  distinction.  After  a  while,  however,  in  such  a 
community  appears  the  smith,  under  one  name  or  another, 
cunning  to  make  or  repair  the  implements  of  the  chase  or 
of  husbandry ;  to  build  boats,  or  to  cover-over  the  humble 
dwellings  of  the  tribe.  The  smith,  by  virtue  of  his  skill, 
fares  better  than  all  the  others,  except  the  chiefs,  yet  the 
hunters  or  herdsmen  or  fishermen  have  more  left  to  t]iem- 


POLITICAL  ECONOMY.  51 

selves,  after  paying  for  the  smith's  work,  than  they  hud 
when  they  tried  to  do  smitli's  work  for  themselves  and  did 
it  very  poorly.  As  the  tribe  grows  in  numbers  and  in 
knowledge,  more  and  more  smiths  appear ;  and  these 
come,  in  time,  to  be  divided  into  classes,  such  as  the 
blacksmith,  working  upon  metals  ;  the  carpenter,  working 
upon  wood,  and  the  mason,  working  upon  stone  or  brick. 
As  wealth  increases  and  the  wants  of  the  community  be- 
come varied,  a  great  number  of  occupations  come  to  be 
recognized,  until  the  members  of  a  community  are  called  by 
a  hundred  different  names,  to  describe  their  ways  of  con- 
tributing, individually,  to  the  production  of  wealth. 

48.  Advantages  of  the  Division  of  Labor. — The  advan- 
tages of  the  division  of  labor  are  many.  The  most  impor- 
tant may  be  indicated  as  follows. 

(rt)  The  division  of  labor  not  only  develops  dexterity  in 
general  but  it  gives  technical  skill.  In  a  primitive  com- 
munity, where  each  man,  by  turns,  does  a  great  variety  of 
work,  there  is,  commonly,  little  nicety  of  touch,  agility  of 
movement  or  accuracy  of  vision.  To  use  a  familiar  phrase, 
it  may  be  said  of  a  member  of  such  a  community  that  his 
"  fingers  are  all  thumbs ;"  and  that  his  senses  are  not  sub- 
tle. It  is,  generally  speaking,  only  when  arts  and  trades 
become  developed  and  are  carried  to  a  high  point  of  per- 
fection, that  the  qualities  indicated  become  the  common 
property  of  the  community. 

Not  only  do  a  people,  among  whom  the  division  of  labor 
has  proceeded  far,  come  to  possess  this  general  dexterity  ; 
but  each  person  acquires  a  high  degree  of  technical  skill  by 
applying  himself,  day  by  day  and  year  by  year,  to  his  single 
avocation.  Adam  Smith  stated,  that,  in  his  day,  a  good 
blacksmith,  who  had,  however,  practised  but  little  in  mak- 
ing wrought  nails,  could,  by  giving  his  whole  day  to  the 
work,   make,  perhaps,  two  or  three  hundred  nails,  of  a 


53  POLITICAL  ECONOMY. 

rather  poor  quality.  A  blacksmith  who  frequently  made 
nails,  but  without  having  this  for  his  sole  or  principal  busi- 
ness, could  perhaps  make  eight  hundred  fairly  good  nails 
in  a  day.  But  a  man  who  gave  himself  wholly  to  making 
nails  could  turn  off  twenty-three  hundred  in  a  day,  all  of 
the  best  finish. 

{b)  The  division  of  labor  saves  much  time  in  apprentice 
ship.  A  man  who  had  to  perform  a  great  variety  of  duties 
would  never  become  a  really  skilled  workman,  but  would 
die  before  he  had  learned  any  one  of  these  well.  Even 
after  the  division  of  labor  had  appeared  and  been  carried 
far,  it  still  required  a  great  deal  of  time  to  thoroughly  learn 
one  trade.  Seven  years  used  to  be  the  period  of  appren- 
ticeship. When,  however,  owing  to  the  still  greater  mul- 
tiplication of  arts  and  the  still  greater  introduction  of 
machinery,  one  of  these  former  trades  becomes  broken  up 
into  half  a  dozen  or  more,  tlie  time  required  to  fit  a  person 
to  do  his  work  in  life  is  greatly  reduced.  It  does  not  take 
nearly  one-fourth  as  much  time  to  learn  to  do  one  thing 
well  as  to  do  four  things  well.  Indeed,  many  people  could 
never  learn  to  do  four  things  well,  who  will  yet  learn  to  do 
one  thing  very  well. 

(c)  The  division  of  labor  saves  time  that  would  otherwise 
be  occupied  in  passing  from  one  kind  of  work  to  another, 
and  in  laying  down  and  in  taking  up  the  tools  of  different 
trades.  This  is  a  consideration,  sometimes  of  great  im- 
portance, sometimes  of  little  importance. 

[d)  The  division  of  labor  promotes  improvements  and 
discoveries.  Many  a  man,  who,  if  he  had  been  occupied 
in  passing  through  a  long  succession  of  varied  duties,  would 
never  have  made  any  discovery  or  invention,  has,  by  being 
shut  up  to  one  single  kind  of  work,  and  having  his  attention 
concentrated  upon  that  alone,  come,  in  time,  to  devise  the 
means  of  doing  rapidly  and  easily  that  which  before  had 


POLITICAL  ECONOMY.  63 

been  done  slowly  and  painfully.  It  is  true  that  many  of 
the  greatest  inventions  have  been  due  to  those  who  were 
not  personally  engaged  in  doing  the  work  to  which  their 
new  machines  were  intended  to  apply;  but  on  the  other 
hand,  there  has  been  an  incalculabls  number  of  inventions 
which  have  been  the  result  of  confining  one  ingenious 
mind  to  a  single  difficult  problem. 

It  is  worth  while  to  notice  here,  that,  while  the  division 
of  labor  greatly  promotes  invention,  it  sometimes  happens 
that,  after  this  has  been  going  on  for  a  long  while,  inven- 
tion comes  in  to  change  the  course  of  things  and  actually 
to  diminish  the  division  of  labor.  Thus,  when  Adam 
Smith  wrote,  there  were  eighteen  different  operations  in- 
volved in  the  making  of  a  common  pin  ;  and  this  extensive 
division  of  labor  undoubtedly  contributed  to  the  steady 
improvement  of  tools  and  implements  used  by  these  differ- 
ent operatives.  Sixty  or  seventy  years  later,  some  ingenious 
person  invented  a  pin-making  machine,  by  which  the  wire 
was  drawn  out,  cut  off,  sharpened,  headed,  and  all  the 
successive  processes  of  manufacture,  down  to  sticking  the 
pins  into  the  paper,  were  performed  upon  the  simple  con- 
dition of  moving  a  wheel. 

{e)  More  important,  perhaps,  than  any  of  the  preceding, 
is  the  consideration  that  the  division  of  labor  permits  the 
adaptation  of  physical  powers  and  personal  qualities 
throughout  a  great  variety  of  work,  and  gives  to  almost 
every  man,  woman,  or  child  a  place  in  the  industrial  order. 
In  a  tliousand  industries  of  the  present  time,  there  is  some 
part  which  a  feeble  or  crippled  person  can  perform  :  some- 
thing which  such  a  person  can  do  just  as  well  as  the  larg- 
est and  strongest.  In  primitive  states  of  society,  tlie  prac- 
tice was  often  resorted  to  of  exposing  sickly  or  deformed 
children,  while  infants,  to  he  devoured  by  wild  beasts,  or  to 
die  of  hunger  or  cold.     This  seems  horrible  enough  ;  yet 


54  POLITICAL  ECONOMY. 

it  is  fairly  a  question  whether  there  was  not  as  much  kind- 
ness as  cruelty  in  it,  when  it  is  considered  that  to  these 
unfortunates  life  only  could  have  been  protracted  misery, 
since  societ}'  had  then  no  place  in  which  they  could  work 
and  earn  their  bread. 


Secondary  Advaxtages  of  the  Division  of  Labor. 

Such  are  some  of  the  primary  advantages  of  the  division 
of  labor.  There  are  others  which  are,  by  one  stage, 
more  remote,  but  not  less  real  or  perhaps  less  important. 
Some  of  these  may  be  indicated  as  follows  : 

49.  (I)  Competition. — Where  each  one  of  a  number  of 
persons  is  every  day  performing  a  variety  of  miscellaneous 
duties,  now  a  little  of  this  and  then  a  little  of  that,  it  is 
difficult  or  impossible  to  measure  the  work  done  by  the 
several  persons  so  employed  :  to  say  that  this  one  has  done 
more,  or  less,  than  that  one  ;  to  assign  credit  or  blame 
according  to  real  desert.  It  is,  in  such  a  case,  moreover, 
difficult  or  impossible  to  say  how  much  of  the  day^s  labor 
has  gone  to  this  piece  of  work  or  to  that ;  and  it  is,  by  con- 
sequence, difficult  or  impossible  to  compare  the  labor-cost 
of  things  so  produced.  But  when  work  is  so  divided  and 
the  parts  so  distributed  that  each  man  becomes  charged 
with  a  certain  definite  task,  it  is  not  only  possible  to  make 
comparisons  between  the  amounts  accomplished  by  different 
workmen  within  the  same  trade,  and  to  make  comparison 
between  the  labor-cost  of  different  articles,  but  every  one, 
at  once,  naturally,  begins  to  do  so.  Such  comparisons  are 
made  with  ease  and  confidence  ;  and  with  com  larison 
enters  competition.  Every  man  coniimres  himself  with 
his  fellow ;  every  employer  makes  comparisons  among  his 
workmen,  both  as  to  the  amount  and  as  to  the  quality  of 
the  work ;  each  producer  looks  carefully  about,  on  everv 


POLITICAL  ECONOMY.  55 

sidft,  to  see  if  there  is  not  some  article  of  equal  value  that 
can  be  made  at  a  smaller  cost  of  labor. 

50  (II)  A  Standard  of  Performance. — With  the  laborers 
of  a  cojnnuuiity  distributed  among  different  occupations, 
according  to  their  powers  and  qualifications,  and  with 
such  opportunities  for  comparison  as  we  have  just  nov/ 
shown  to  exist,  there  comes  to  be  a  standard  for  the  per- 
formance of  work,  in  each  separate  art  or  trade.  Some 
mason,  for  instance,  who  is  exceptionally  true  of  eye  and 
hand,  one  day  lays  a  better  wall  than  he,  himself,  had  ever 
before  done,  more  straight  and  even  and  firm.  This  im- 
mediately becomes  a  standard  for  the  future,  not  only  to 
him,  but  to  every  other  mason  in  the  neighborhood,  and 
also  to  all  persons  who  employ  masons.  It  having  been 
once  seen  that  so  good  a  wall  can  be  made,  all  hereafter 
desire  that  their  walls  shall  be  made  not  less  perfectly. 
After  this  standard  has  been  reached  by  the  craft,  some 
mason,  some  day,  goes  ahead  of  this  and  builds  an  even 
better  wall ;  which,  in  turn,  becomes  the  standard  of  fu- 
ture work:  and  so  the  thing  goes  on.  What  men  will  do 
depends  very  much  on  what  they  try  to  do;  what  they  will 
try  to  do  depends  very  much  on  what  they  believe  possible, 
or  upon  examples  Avhicli  they  have  themselves  seen  of  the 
best  work. 

51.  (Ill)  Esprit  de  Corps.— With  the  formation  of  large 
bodies  of  laborers,  devoting  themselves  to  certain  arts  and 
trades,  there  soon  arises  a  sort  of  public  sentiment  within 
the  craft,  which  demands  of  every  member  that  he  shall  at 
least  approach  the  standard  of  performance  wliich  at  the 
time  exists,  and  that  he  shall  not,  by  his  actions,  throw  dis- 
credit on  his  fellow  workmen.  This  public  sentiment, 
within  the  trade,  often  exerts  more  influence  on  many 
workmen  than  competition  alone  would  do.  A  great  many, 
wlio  would  care  little  about  pleasing  their  employers,  will 


o6  POLITICAL  ECONOMY. 

do,  or  will  forbear,  a  great  deal  in  order  to  keep  the  respect 
and  goodwill  of  tlieir  fellows. 

52.  (IV)  Industrial  Environment. — By  these  somewhat 
hard  words,  I  mean  to  express  the  influence,  in  addition  to 
all  that  has  been  before  spoken  of,  which  is  exerted  upon 
the  laborers  of  a  community,  in  general,  by  their  being 
placed  in  the  midst  of  a  great,  powerful,  and  highly  organ- 
ized system  of  production.  In  such  a  community,  the  child 
is  brought  into  the  w^orld  half  an  artisan.  From  his  pa- 
rents he  has  derived  handiness,  aptness,  quickness,  and  fer- 
tility of  resource.  Then,  too,  he  becomes  a  better  work- 
man simply  by  being  accustomed,  through  childhood,  to 
see  tools  used  with  address,  and  through  watching  the 
alert  movements,  the  prompt  co-operation,  the  precise  ma- 
nipulation, of  bodies  of  skilled  workmen.  The  better  part 
of  industrial,  as  of  every  other  kind  of  education,  is  uncon- 
sciously obtained.  And  when  the  boy  goes  himself  to  work, 
he  finds  examples,  on  every  side,  to  imitate;  if  he  encoun- 
ters an  obstacle,  he  has  only  to  stop,  or  hardly  even  to  stoji, 
to  see  some  older  hand  deal  with  the  same;  if  he  needs 
help,  it  is  at  his  elbow;  and,  above  all,  he  comes  under 
impulses  and  incitements  to  exertion,  and  to  the  exercise 
of  care  and  pains  and  ingenuity,  which  are  as  strong  and 
constant  as  the  impulses  and  incitements  which  a  recruit 
experiences  in  a  crack  regiment,  from  the  moment  he  dons 
the  uniform. 

53.  Is  there  an  Offset  to  this  ? — But,  it  may  be  asked,  is 
not  this  increase  of  production  at  the  expense  of  health  and 
life  ?  Does  it  not  mean  that  the  laborer  will  be  the  sooner 
and  the  more  completely  worn  out?  I  answer,  that,  in 
part,  this  may  be  so;  but  that  in  jiart,  j^robably  the  great- 
er part,  it  IS  not  true.  It  is  not  necessarily  true  in  any 
degree.     Two  things  are  to  be  borne  in  mind. 

(a)  Mankind  were  made  for  labor,  for  patient,  energetic 


POLITICAL  ECOWOMT.  57 

labor.  Keen,  persistent  activity  is,  up  to  a  certain  point, 
not  injurious.  On  the  conti-ary,  industry  Las  its  sanitary, 
not  less  than  its  economic  reward.  Neither  idling  nor  daw- 
dling over  work  is  beneficial  to  health. 

{b)  A  little  of  disorderly  work  is  often  more  trying  than 
a  great  deal  of  orderly  work.  Perhaps  some  one  of  my 
readers  will  remember  a  day  of  travel  which  was  peculiarly 
tiresome.  He  may  have  been  called  up  unnecessarily  early, 
and  have  been  not  a  little  worn  out  by  the  suspense  of 
waiting  before  it  was  time  to  start;  then,  at  the  last  mo- 
ment, it  may  have  been  discovered  that  something  was 
lacking.  This  involved  a  deal  of  hurrying  to  and  fro,  and 
an  anxious  and  excited  search,  followed  by  a  sharp  run  to 
the  railroad  station.  Here  it  was  learned  that  the  train 
was  late,  and  the  end  of  a  half-hour  of  uneasy  waiting  and 
moving  about  saw  the  traveller  on  his  way,  already  pretty 
well  tired  out.  Further  delay  upon  the  track,  by  reason 
of  a  "hot-box,"  and  a  failure  of  connection  at  a  railroad 
Junction,  completed  the  misfortunes  of  the  morning;  and 
the  traveller  arrived  at  his  destination,  after  a  really  short 
journey,  more  used-up  than  would  have  been  involved  in 
making  a  well-ordered  and  fortunate  trip  of  five  times  the 
distance.  In  the  same  way,  the  proper  direction  of  indus- 
try will  enable  laborers  to  accomplish  much  more,  with 
much  less  of  nervous  strain  and  muscular  wear-and-tear. 
There  are  some  countries  where,  if  you  were  to  enter  a  fac- 
tory, you  would  think  a  small  riot  was  in  progress.  Every- 
body seems  excited  and  hurried,  and  there  is  a  great  deal 
of  shouting  and  running  to  and  fro;  yet,  as  a  matter  of 
fact,  the  machinery  is  moving  at  a  much  slower  rate  than 
is  customary  in  an  English  factory,  and  the  "output," 
per  hand,  is  scarcely  one  half  as  much.  In  an  establish- 
ment where  each  person  has  his  place  and  perfectly  knows 
his  duty;  where  work  never  chokes  its  channels  and  never 


58  POLITICAL  ECONOMY. 

runs  low;  where  nothing  comes  out  wrong  end  foremost; 
where  there  is  no  fretting  or  chafing;  where  there  are  no 
blunders  or  catastrophes  ;  where  there  is  no  clamor  and  no 
fuss,  a  pace  may  be  maintained  which  would  soon  kill  out- 
right the  operatives  of  a  noisy,  ill-disciplined,  badly-organ- 
ized shop. 

54.  (V)  Mastership  in  Industry. — When  the  division  of 
labor  has  been  carried  a  great  way,  in  any  community,  pro- 
duction receives  a  tremendous  im-pulse  from  the  fact  that 
large  bodies  of  labor  and  capital  come  under  the  control  of 
individuals  who  have  exceptional  ability  for  the  conduct  of 
business.  In  a  primitive  state  of  society,  the  man  of  great 
brain-power  and  will-power  moves  but  a  single  pair  of 
hands.  In  an  advanced  industrial  state,  he  may  move  a 
thousand.  If  his  choices  as  to  what  shall  be  done,  how 
it  shall  be  done,  when  it  shall  be  done,  are  Judicious,  there 
cannot  fail  to  be  a  vast  gain  in  the  amount  of  work  done 
and  in  the  amount  of  waste  saved. 

The  division  of  labor  in  its  first  stages  does  not  require 
the  introduction  of  the  master  class.  When  the  forms  of 
production  are  few,  and  the  materials  are  simple;  when 
only  hand-tools  are  used,  and  the  artisan,  working  at  his 
bench,  makes  the  whole  of  an  article;  when  styles  are 
standard  and  the  consumers  of  ?,  product  live  close  at  hand, 
the  need  of  the  employer  is  not  greatly  felt.  Each  artisan 
may  carry  on  his  work,  in  his  own  little  shop,  and  keep  up 
with  the  others. 

But  when  the  hand-loom  gives  place  to  the  power-loom  ; 
when  great  numbers  of  persons,  of  all  degrees  of  skill  and 
strength,  are  brouglit  into  the  giant  factory,  each  joerform- 
ing  one  simple  operation,  knowing  perhaps  nothing  about 
any  other;  when  powerful  and  delicate  machinery  is  intro- 
duced; when  costly  materials  have  to  be  brought  from  the 
four  quarters  of  the  globe,  and  the  product  is  to  be  distrib- 


POLITICAL  ECONOMY.  59 

nted,  by  the  agencies  of  commerce,  throughout  distant 
lands,  then  the  employer  becomes  not  only  a  necessity  of 
the  situation,  but  the  master  of  the  situation.  If  he  have 
the  genius  to  plan,  he  can  find  a  thousand  helpers,  each  of 
whom  Avill  do  his  own  part  perfectly,  yet  not  one  of  whom 
but  would  have  been  utterly  helpless  and  amazed  in  the 
face  of  the  difficulties  and  dangers  which  only  bring  into 
keener  exercise  the  powers  of  the  real  man  of  affairs. 

55.  Business  Ability  as  the  Fourth  Grand  Agent  in  Pro- 
duction.— At  the  close  of  Chapter  III,  we  spoke  of  three 
great  primary  ageuts  of  production,  viz..  Land,  Labor,  and 
Capital;  and  that  statement  suffices  for  a  primitive  society. 
But  when  we  undertake  to  account  for  either  the  pro- 
duction or  the  distribution  of  wealth,  upon  the  vast  scale 
of  modern  industry  and  trade,  in  all  enlightened  and  pro- 
gressive nations,  it  becomes  necessary  to  introduce  a  fourth 
agent  of  production,  viz..  Business  Ability;  to  admit  a 
fourth  claimant  in  distribution,  viz.,  the  Employer. 

By  Business  Ability  in  this  connection,  we  mean  ability 
in  more  than  the  degree  which  is  required  to  enable  a  sin- 
gle laborer  or  artisan  to  direct  his  own  production  and 
manage  his  own  small  affairs;  in  more,  even,  than  the  de- 
gree which  is  required  by  the  employer  of  labor  in  that 
state  of  industry  where  the  division  of  labor  has  proceeded 
but  a  little  way. 

By  Business  Ability,  as  a  distinct  economic  agent,  we 
mean  the  power,  the  capacity,  the  temper  required  to  do 
business,  with  at  least  moderate  success,  in  those  later 
stages  of  industrial  organization,  when  the  division  of  labor 
has  proceeded  far,  when  production  takes  place  upon  the 
large  scale,  and  Avith  reference  mainly  to  general,  rather 
than  to  local,  markets. 


CHAPTER  VIII. 

CAPITAL. 

66.  The  First  Canoe. — We  have  thus  far  spoken  of  land 
and  labor;  we  are  now  to  speak  of  capital. 

The  capital  of  a  community  is  that  j^art  of  its  wealth  * 
which  is  devoted  to  the  production  of  wealth. 

A  very  simple  illustration  will  suffice  to  show  the  origin 
and  office  of  capital. 

Let  us  take  the  case  of  a  tribe  dwelling  along  the  shore 
and  living  upon  fish  caught  from  the  rocks  jutting  into 
the  sea.  Summer  and  winter  together,  good  seasons  and 
bad,  they  derive  from  this  source  a  scanty  and  preca- 
rious subsistence.  When  the  fish  are  plentiful,  the  people 
live  f  i-eely,  even  gluttonously.  When  their  luck  is  bad,  they 
submit  to  privations  which  involve  suffering,  sometimes 
famine.  Poor  as  this  condition  of  life  is,  it  is  not  likely  to 
grow  any  better.  Unless  some  new  force  enters  into  the 
life  of  the  tribe,  their  children  and  grandchildren  will  be 
found  living  just  as  meanly  and  precariously. 

But  let  us  suppose  that  one  of  these  fishermen,  moved 
by  a  strong  desire  to  better  his  own  condition,  undertakes 
to  lay-by  a  store  of  fish.  Living  as  closely  as  will  con- 
sist with  health  and  strength,  he  denies  himself  every  in- 
dulgence, even  at  the  height  of  the  season;  and,  so,  by  lit- 
tle and  little,  accumulates  in  his  hut  a  considerable  store  of 
dried  food.     As  the  dull  season  approaches,  he  takes  all  he 

*  Excluding  land  and  natural  agents,  considered  as  unimproved. 
60 


POLITICAL   ECONOMY.  61 

can  carry  and  goes  up  among  tlie  hills,  where  he  finds  trees 
Avliose  bark  he  detaches  by  sliarp  stones.  Again  and  again 
he  returns  to  his  work  in  tlie  hills,  wliile  his  neighbors,  wlio 
ate  more  freely  than  he  during  tlie  fishing  season,  are  pain- 
fully striving  to  keep  themselves  alive.  At  the  end  of  the 
dull  season,  he  brings  down  to  the  water  a  canoe,  so  light 
that  it  can  be  borne  upon  his  shoulders,  so  buoyant  that  in 
it  he  can  j)addle  out  to  the  "banks,"  which  lie  two  miles 
or  ten  miles  from  shore,  where  in  a  day  he  can  get  as  many 
fish  as  he  coald  catch  from  off  the  rocks  in  a  week. 

57.  The  Canoe-Builder. — The  canoe  is  capital.  Its 
owner  is  a  capitalist.  He  can  now  take  his  choice  of  three 
things.  (1)  lie  may  go  out  in  his  boat  and  bring  home 
supplies  of  fish  which  will  allow  him  to  marry  and  rear 
a  family  in  comfort  and  security,  while,  with  the  surplus, 
he  hires  some  of  his  neighbors  to  build  him  a  hut,  their 
women  to  weave  him  blankets  and  nets,  their  children  to 
bring  water  from  the  spring  and  to  wait  upon  his  family. 
(2)  He  may  let  out  the  boat  to  some  one  who  will  be  glad  to 
get  the  use  of  it  by  paying  for  it  as  much  fish  as  one  family 
could  possibly  consume;  and  he  may  himself  stay  at  home 
in  complete  idleness,  basking  in  the  sun  or  on  stormy  days 
seeking  refuge  in  his  comfortable  hut.  In  other  words,  he 
may  thereafter  "  live  upon  his  income."  (3)  He  may  let- 
out  the  canoe,  and  himself  turn  to  advantage  the  knowledge 
and  the  experience  acquired  by  its  construction,  in  making 
more  canoes. 

This  last  is  what  he  is  most  likely  to  do.  Again  and 
again  lie  comes  down  from  the  hills  to  the  shore,  bringing 
a  new  canoe,  for  which  scores  of  fishermen  clamorously 
compete.  And  it  is  to  be  noted  that  the  later  boats  are 
made  at  a  smaller  cost  of  effort  and  sacrifice.  He  has  found 
out  the  groves  where  the  trees  are  largest  and  tlu;  trunks 
most  clear  of  branches.     He  has  acquired  a  knack  which 


62  POLITICAL  ECONOMY. 

makes  it  almost  a  pleasure  to  strip-off  vast  rolls  of  tough, 
elastic  bark.  He  no  longer  spoils  the  half-completed  work 
by  a  clumsy  movement  or  an  ill-directed  blow.  Moreover, 
his  personal  toil  and  pains  are  reduced  to  a  minimum, 
since,  for  a  small  part  of  the  price  of  a  canoe,  he  iiires  some 
of  his  neighbors  to  carry  his  burdens  and  do  the  heavy 
work. 

58.  The  Increase  of  Canoes. — But  soon  the  canoe-])uilder's 
gains  are  threatened.  Thus  far,  in  the  possession  of  ex- 
ceptional skill  and  knowledge,  lie  has  been  a  monopolist, 
and  has  reaped  a  monopolist's  profits.  Now,  however, 
stimulated  by  the  sight  of  such  great  wealth  (that  is,  so 
great  a  command  of  other  people's  labor)  acquired  by  one 
man,  others  begin  to  enter  the  field.  As  an  essential  con- 
dition, each  must  first  save  and  accumulate  enough  food  to 
support  him  while  making  his  first  boat:  that  is,  must 
accumulate  a  certain  amount  of  capital.  This,  however,  is 
much  less  difficult  than  it  was  in  the  case  of  the  original 
boat-builder  (1)  because  fish  have  come,  through  the  mul- 
tiplication of  boats,  to  be  much  more  easily  obtained;  (3) 
because,  with  good  models  before  him,  the  new  builder 
has  fewer  experiments  to  make,  and  a  far  less  ingenious 
man  can  now  make  a  fair  boat ;  (3)  because  certainty  and 
nearness  of  success  will  inspire  the  labors  of  ten  men,  where 
one  will  be  moved  to  exertion  and  sacrifice  by  a  prospect 
that  is  distant  and  doubtful.  Moreover,  some  of  the 
shrewdest  of  the  assistants  of  the  old  boat-builder,  who 
have  watched  him  at  his  work  and  whom  he  has  trusted, 
more  and  more,  to  do  even  the  nicer  parts  of  the  task,  be- 
gin to  desert  him  and  to  set  up  for  themselves. 

With  this  increase  in  the  number  of  builders,  the  rent  of 
boats  falls  rapidly  and  the  profits  of  the  business  are 
greatly  reduced.  The  first  boat  repaid  its  cost  in  a  few 
weeks  or  even  days.     Indeed,  the  builder  might,  if  he  had 


POLITICAL  ECONOMY.  63 

chosen,  have  lived  thereafter,  so  long  as  the  boat  lasted, 
in  complete  idleness,  getting  as  much  fish  as  he  could  eat 
simpl}' bj  lettiug-out  the  boat  toothers.  But  now  a  boat 
only  repays  its  cost  in  months,  perhaps  in  years.  Still  the 
men  who  make  boats  get  a  better  livelihood  than  those 
who  use  them  ;  while  those  who  use  boats  get  a  better 
livelihood,  even  after  paying  a  high  rent,  than  those  who 
fish  off  the  rocks. 

59.  The  Parting  of  the  Ways. — Now  let  us  suppose  that 
the  manufacture  of  boats  has  proceeded  so  far  that  there 
is  one  serviceable  boat  for  every  four  adult  males  of  the 
tribe.  At  this  point,  one  of  two  widely  divergent  courses 
may  be  adopted,  with  \evj  important  results  to  the  future 
of  the  community. 

1st.  The  multiplication  of  boats  goes  forward  till  each 
man  is  provided  with  a  boat  in  which  he  can  catch  enough 
fish  in  an  hour  or  two,  a  day,  to  keep  himself  and  his 
family,  summer  and  winter,  good  seasons  and  bad.  The 
creation  of  capital  has  at  least  led  to  this  result  :  it  has 
put  famine  out  of  the  question.  There  is  always  an  abun- 
dance of  cured  fish,  even  iu  tlie  meanest  hut.  All  the  time 
not  occupied  by  fishing  is  spent  in  idleness  or  sport. 

2d.  The  manufacture  of  boats  stops  at  the  point  where 
fish  for  the  whole  tribe  can  be  provided  by  one-fourth  of 
its  members.  These  toil  early  and  late  upon  the  banks  ; 
while  the  remaining  members  of  the  tribe  work  for  them, 
in  one  capacity  or  another.  Only  so  many  boat-builders, 
remain  as  are  needed  to  repair  and  keep  up  the  exist- 
ing stock  of  boats.  Many  of  the  tribe  become  house- 
builders,  since  no  one  is  now  willing  to  live  in  the  paltry 
lints  which  formerly  were  thought  good  enough  for  any- 
body. Others  become  domestic  servants  in  the  families  of 
the  fishermen,  of  the  boat-builders,  and  of  the  house- 
builders.     Others  occupy  themselves  in  making  and  fash- 


64  POLITICAL  ECONOMY. 

ioning  trinkets  and  ornaments,  which,  in  a  semi-barbarous 
tribe,  are  always  in  great  request. 

Soon  new  wants  emerge. 

First,  a  taste  for  a  diversified,  diet  begins  to  appear. 
Whereas,  formerly  no  man  thought  of  anything  better 
than  to  have  enough  of  fresh  or  of  dried  fish  to  eat,  the 
members  of  the  tribe  now  crave  other  kinds  of  food ;  and 
many  betake  themselves  to  breaking-up  the  soil  and  culti- 
vating vegetables,  fruits  and  grains,  which  they  exchange, 
on  favorable  terms,  for  fish,  or  for  the  work  of  the  house- 
builder,  or  for  menial  services  on  the  part  of  others.  Some 
take  to  the  mountains,  and  there  snare  or  entrap  the 
wild  goats,  which  they  bring  down  to  the  shore,  feeding 
and  tending  and  breeding  them,  and  selling  their  milk, 
their  flesh  and  their  skins  for  the  labor,  or  the  products  of 
the  labor,  of  others. 

Secondly,  in  addition  to  the  taste  for  a  diversified  diet, 
there  soon  begins  to  be  felt  a  desire  for  better  dress. 
Whereas,  formerly  no  one  thought  of  more  than  to  be 
covered  against  the  cold,  the  men  of  the  tribe  now  wish 
to  have  themselves  and  their  wives  and  children  clad  in 
comely  and  even  handsome  garments  ;  and  many  now 
betake  themselves  to  preparing  and  fashioning  skins  and 
animal  hair  into  dress,  for  their  own  use  and  for  the  use 
of  other  members  of  the  tribe. 

When  we  come  to  speak  of  the  consumption  of  wealth, 
we  shall  see  what  are  the  effects  of  these  new  economic 
desires  upon  the  welfare  of  the  tribe  which,  f-o  short  a 
time  ago,  lived  wholly  upon  fish  caught  upon  the  rocks 
along  the  shore. 

60.  The  Law  of  Capital. — It  is  not  necessary  at  present 
to  trace  further  the  increase  of  capital.  At  every  step  of 
its  progress,  capital  follows  one  law.  It  arises  solely  out  of 
saving.     It  stands  always  for  self-denial  and  abstinence. 


POLITICAL  ECONOMY.  65 

At  the  first  beginning,  savings  are  made  slowly  and  pain- 
fully ;  and  tlie  first  items  of  capital  have  a  power  in  ex- 
change (a  power,  that  U,  to  command  the  labor  of  those 
who  have  not  capital)  corresponding  to  the  difficulty  witli 
which  they  are  secured.  The  first  bow,  the  first  spear,  the 
first  canoe,  the  first  spade,  much  as  they  cost,  pay  for 
themselves  in  a  few  days,  when  once  they  have  been  made. 
Subsequent  increments  of  capital  are  gained  at  a  constantly 
diminishing  sacrifice,  and  receive  a  constantly  diminishing 
remuneration,  until,  in  the  most  advanced  countries,  build- 
ings are  erected  and  machines  constructed  which  only  pay 
for  themselves  in  ten,  fifteen,  or  twenty  years.  . 

At  every  stage,  capital  releases  labor-power  which  was 
formerly  occupied  in  providing  for  the  wants  of  the  com- 
munity, according  to  its  then  prevailing  standard  of  living. 
At  every  stage,  the  members  of  the  community  make  tlieir 
choice,  whether  they  will  apply  the  labor-power,  thus  re- 
leased, to  the  production  of  wealth  in  otlier  branches,  or 
will  content  themselves  with  living  as  well  as  before,  Avith 
less  labor,  giving  up  the  newly  acquired  leisure  to  idleness 
or  sport. 

61.  The  Three  Forms  of  Capital. — In  a  rough  way,  capi- 
tal may  be  said  to  exist  in  three  forms  :  subsistence,  tools, 
materials. 

Snhsistence. — In  the  earliest  stages,  capital  consists  mainly 
of  the  means  of  subsistence  for  the  producer  and  his 
family.  It  was  not  easy,  at  the  beginning,  to  lay-by  enougli 
of  the  game,  or  the  fish,  or  the  fruits,  of  one  season  to  last 
until  the  next.  For  want  of  such  a  store  of  food  many  a 
tribe  perished  ;  many  another  was  kept  in  a  low,  miserable 
condition,  unable  to  shift  its  seat  to  more  promising  locali- 
ties, and  continually  depleted  by  famine  and  disease. 

But  Avhen  once  a  tribe,  by  exceptional  good  fortune,  or 
through  prudence  and  self-control,  acquired  a  reserve  suf- 


66  POLITICAL  ECONOMY. 

ficient  for  a  full  year's  subsistence,  it  became,  in  a  degree, 
master  of  its  conditions.  It  could  shift  its  seat  to  better 
hunting  or  fishing  grounds.  It  could  pursue  its  avoca- 
tions systematically  and  economically,  not,  as  before,  hur- 
riedly and  wastefully,  under  the  stress  of  immediate  want. 
Moreover,  the  physical  strength  of  its  members  was  kept  at 
the  highest  point  by  regular  and  sufficient  diet. 

An  ample  year's  subsistence  forms  the  most  important 
advance  which  a  people  ever  make  in  their  progress  towards 
industrial  prosperity.  No  subsequent  step  costs  one-half, 
or  a  tithe,  as  much.  Many  peoples  never  find  themselves 
able  quite  to  accomplish  this.  The  people  of  British  India 
can  hope  for  no  more,  in  good  years,  than  to  be  carried 
through  into  the  next  ;  while,  once  in  every  four  or  five 
years,  a  famine  following  upon  a  short  crop  sweeps  away 
multitudeg;  through  sheer  starvation,  or  through  the  fevers 
which  feed  on  half-famished  populations.  Even  in  Ire- 
land, there  was  known,  half  a  century  ago,  a  period,  two 
or  three  months  long,  preceding  harvest,  which  was  called 
by  the  peasantry  ''the  starving  season."  The  early  Greek 
poet,  Alkman,  calls  Spring  "  the  season  of  short  fare." 

Tools. — The  next  purpose,  in  logical  and  generally,  also, 
in  historical  order,  for  which  capital  is  accumulated  is  the 
acquisition  of  tools.  We  use  the  word  here  in  its  largest 
sense,  including  all  utensils,  apparatus  and  machinery. 
The  knife,  the  bow,  the  spear,  the  canoe,  the  net,  are  the 
tools  of  a  certain  stage  of  industrial  society.  The  spade, 
the  cart,  the  plough,  the  distaff,  the  forge,  are  the  tools  of  a 
later  stage.  The  loom,  the  lathe,  the  printing-press,  the 
trip-hammer,  the  railroad  and  the  ship,  are  the  tools  of 
to-day.  The  buildings  which  protect  machinery  from  the 
weather,  and  the  shops  in  which  trade  and  manufactures 
are  carried  on,  are,  in  this  sense,  tools. 

The  increase  in  productive  power  which  takes  place,  as  a 


POLITICAL  ECONOMY.  67 

community  acquires  tlie  capability  of  using  complicated 
tools  and  apparatus,  and  of  applying  steam  and  water-power 
to  move  machinery,  is  immense,  almost  beyond  our  concep- 
tion. One  man  witli  simple  tools  may  do  the  work  of  ten 
men,  equally  strong  and  equally  well  fed,  Avho  have  only 
their  hands  to  work  with.  Ten  men  with  the  wood-work- 
ing, cotton-  and  wool- working,  or  metal-working  machinery 
of  to-day,  run  by  steam  or  Avater-power,  ma}"  easily  do  the 
Avork  of  a  thousand,  with  distaff,  chisel,  saw  and  axe.  It 
s  exceedingly  important  that  the  youthful  student  of  eco- 
nomics should  early  be  made  familiar  with  some  of  the 
applications  of  tools,  apparatus  and  machinery  to  manufac- 
tures, in  order  that  he  may  come  to  appreciate  how  large  a 
factor  in  the  production  of  wealth  this  form  of  capital  is. 
It  would  be  fortunate  if  vists  to  large  industrial  establish- 
ments could  be  made  a  regular  part  of  the  system  of  in- 
struction for  children. 

Materials. — The  third  form  which  capital  takes  is  that 
of  materials.  The  word,  as  here  used,  covers  all  kinds  of 
wealth  which  are  devoted  to  the  production  of  wealth  in 
any  other  way  than  as  subsistence  for  the  laborer,  or  as  tools, 
to  increase  his  power  in  production.  In  a  primitive  state, 
materials  play  a  small  part.  The  bait  for  the  hook,  among 
a  tribe  of  fishermen  ;  the  corn  saved  for  seed,  in  a  jilanting 
community,  are  the  most  prominent  materials  in  early 
industry.  In  a  later  age,  a  large  part  of  the  accumulated 
WL'ulth  of  a  community  exists  in  this  form, 

62.  Mutual  Relations  of  the  Three  Forms  of  Capital.— We 
have  said  that  the  capital  of  a  community  may  be  classed 
under  three  heads :  subsistence,  tools,  materials.  In  a 
certain  sense,  these  three  may  be  resolved  into  one,  sub- 
sistence ;  as,  indeed,  all  forms  of  subsistence  itself  may  be 
resolved  into  one,  food.  Thus,  the  first  simple  tools  of 
the  barbarous  community  may  be  said  to  be  exactly  repre- 


68  POLITICAL  ECONOMY, 

sented  by  the  subsistence  required  by  the  laborers  engaged 
in  making  the  tools.  The  first  materials  produced  by  the 
aid  of  these  tools  may  be  said  to  be  represented  by  the 
subsistence  of  the  laborers  using  the  tools^  added  to  that  of 
the  laborers  who  made  the  tools.  And  so  of  the  more 
elaborate  tools  and  machines,  and  the  more  various  and 
costly  materials,  of  after  ages  :  all  may  be  said  to  represent 
the  subsistence  of  the  laborer  while  engaged  in  produc- 
tion. 

Likewise,  all  the  forms  of  subsistence,  viz.,  food,  cloth- 
ing, shelter  and  fuel,  may  be  reduced  to  one,  food.  The 
clothing  of  the  laborer,  for  example,  represents  the  food 
which  he  consumed  while  he  was  gathering  the  fibres  of  the 
wild  grasses  and  weaving  them  into  a  blanket.  The  hut 
represents  the  food  consumed  during  its  erection.  The 
fuel  represents  the  food  consumed  while  the  laborer  was 
gathering  fagots  in  the  forest. 

But,  while  all  the  three  forms  of  capital,  viz.,  subsistence, 
tools  and  materials,  may  thus,  in  theory,  be  reduced  to  sub- 
sistence, and  while  the  four  forms  of  subsistence,  itself, 
viz.,  food,  clothing,  shelter  and  fuel,  may  likewise  be 
resolved  into  food,  it  yet  makes  a  vast  difference  to  the 
productive  power  of  the  community  in  what  jiroportion  its 
capital  is  actually  divided  among  these  different  elements. 

63.  Fixed  and  Circulating  Capital. — The  economists  have 
been  wont  to  divide  capital  into  two  classes,  fixed  and 
circulating.  The  distinction  has  a  certain  value,  although 
it  is  not  always  easy  to  say  into  which  class  a  certain  body 
of  capital  would  fall. 

Mr.  Mill  gives  the  following  definitions  of  these  classes  : 
"  Capital  which  exists  in  any  durable  shape,  and  the  return 
to  which  is  spread  over  a  period  of  corresponding  duration, 
is  called  Fixed  Capital.^' 

"  Capital  which  fulfils  the  whole  of  its  office,  in  the  pro 


POLITICAL   ECONOMY.  69 

duction  in  which  it  is  engaged,  by  a  single  use,  is  called 
Circulating  Capital.'" 

This  distinction  may  be  illustrated  as  follows.  Here  is 
a  quantity  of  woollen  yarn.  Is  it  fixed  or  circulating 
capital  ?  T\'e  answer,  circulating  capital,  inasmuch  as  it 
does  its  whole  work  in  production  by  a  single  use,  that  is, 
when  it  is  woven,  once  for  all,  into  cloth.  On  the  other 
hand,  the  loom  on  which  the  yarn  was  woven,  is  fixed 
capital,  because  it  exists  to  weave  many  and  many  a  lot  of 
yarn  into  cloth  ;  and  the  return  to  the  capital  invested  in  it 
is  spread  over  a  considerable  period  of  time,  several  years 
at  least. 

Let  us  take  another  illustration.  Here  is  a  quantity  of 
"  stores"  fitted  to  support  a  large  body  of  laborers,  viz., 
clothes,  hats  and  shoes,  meat,  bread,  groceries,  and  sc 
forth.  Do  these  constitute  fixed  or  circulating  capital  ? 
Circulating  capital,  because  they  can,  as  yet,  be,  so  to 
speak,  turned  into  any  industrial  direction  :  that  is,  they 
can  be  used  in  subsisting  laborers  who  are  engaged  in 
making  almost  any  conceivable  thing,  or  class  of  things. 
Let  us  suppose  that  these  goods  are  actually  consumed  in 
subsisting  a  gang  of  laborers  engaged  in  building  a  bridge, 
or  putting  up  a  mill,  or  making  a  railroad.  Here  we 
should  have  a  body  of  circulating  capital  turned  into  a 
jody  of  fixed  capital,  i.e.,  a  bridge,  a  mill  or  a  railroad, 
which  would  continue  to  perform  its  industrial  purpose 
throughout  many  years,  perhaps  generations,  and  the 
return  to  which  would  be  spread  over  a  corresponding 
period.  On  the  other  hand,  we  might  have  supposed 
these  stores  to  have  been  consumed  by  laborers  engaged  in 
making  shovels  or  axes,  which  would  be  worn  out  by  con- 
stant use  in  a  few  montlis,  pcrliaps  weeks,  and  which  would 
thus  rightly  be  called  circulating  capital. 


70  POLITICAL  ECONOMY. 

64.  Too  Rapid  Conversion  of  Circulating  into  Fixed 
Capital. — It  will  appear,  from  the  foregoing,  that,  while  it 
might  not  always  be  easy,  or  even  possible,  to  say  in  regard 
to  a  given  thing,  whether  it  belonged  to  fixed  or  to  circu- 
lating capital,  there  is,  yet,  a  general  distinction  to  be 
drawn  between  masses  of  capital,  as  to  the  length  of  time 
over  which  their  usefulness  extends.  It  is,  also,  true  that, 
the  more  capital  partakes  of  the  fixed  character,  the  nearer 
it  comes  to  a  single  and  a  specific  use ;  whereas,  on  the 
other  hand,  circulating  capital  can  generally  be  turned,  at 
will,  to  any  one  of  many  industrial  purposes.  When  the 
railroad  has  been  built,  it  will  do  nothing  but  carry  goods 
and  passengers,  on  land,  by  a  certain  track,  from  one  fixed 
point  to  another.  For  any  other  purpose,  it  is  worthless  ; 
whereas  the  clothes,  the  hats  and  shoes,  the  food,  etc., 
might  have  been  used  to  build  the  railroad,  as  they  were, 
or  to  build  ships  which  should  carry  passengers  and  freight 
by  water,  or  to  put  up  mills,  or  to  make  the  looms  for  the 
mills,  or  to  raise  the  wool,  the  cotton,  or  the  flax  to  be 
woven  on  the  looms,  or  to  do  any  one  of  a  thousand  other 
things. 

If,  now,  too  large  a  part  of  the  capital  of  a  country 
should,  thoughtlessly  or  under  speculative  excitement,  be 
put  into  railroads,  the  results  might  be  very  injurious. 
There  might  not  be  capital  enough  left  to  build  the  ships 
to  carry  away  the  freight  which  the  lailroads  should  bring 
down  to  the  seaports ;  there  might  not  be  capital  enough 
left  to  build  the  mills,  and  to  fill  these  with  machinery  and 
to  supply  them  with  materials,  and  to  subsist  the  weavers 
and  spinners  who  should  make  the  cloth  which  should 
become  freight  for  the  railroads.  There  might  not  be 
capital  enough  left  to  "  improve"  and  to  "  stock  "  the  farms 
of  the  country,  which  should  furnish  grain  and  cattle  for 
transportation. 


POLITICAL  ECONOMY.  71 

Instances  of  the  too  rapid  conversion  of  circulating 
tapital  into  one  or  another  form  of  fixed  capital  have  been 
very  frequent.  These  are  especially  likely  to  occur  among 
progressive  nations.  They  are  alu^ays  followed  by  a  great 
waste  of  labor-power,  sometimes  by  a  partial  paralysis  of 
industry;  sometimes  by  what  is  called  a  "i3anic,"or  a 
"crisis,'''  when  the  powerful  macliinery  of  production  goes 
wrong,  and  its  force,  instead  of  being  employed  in  creating 
things  useful  to  men,  is  turned  to  its  own  destruction. 
This  danger  is  a  part  of  the  price  which  highly  civilized 
communities  have  to  pay  for  the  great  advantages  of  the 
division  of  labor,  the  organization  of  industry,  the  in- 
vention of  machinery. 


CHAPTER  IX. 
KBi^TlON  OF  COST  OF  PRODUCTION  TO  VALUE. 

65.  Relation  of  Labor  to  Value. — We  have  defined 
wealth ;  and,  in  the  last  few  chapters,  we  have  shown  un- 
der what  conditions,  as  to  the  use  of  land,  labor  and  capi- 
tal, the  production  of  wealth,  that  is,  the  creation  of  values, 
takes  place.  We  are  now  in  a  position  to  take  up,  for  fur- 
ther analysis,  the  subject  of  value. 

It  is  often  said  that  labor  is  the  only  efficient  cause  of 
value;  or,  that  the  values  of  articles  are  according  to  the 
amounts  of  labor  required  for  their  production,  severally. 
It  ought  to  be  evident,  at  the  first  thought,  that  this  can- 
not be  strictly  true,  since,  for  the  production  of  any  arti- 
cle, there  is  required,  as  we  saw,  the  use  of  capital,  as  well 
as  of  labor.  If,  then,  of  two  articles  embodying  equal 
amounts  of  labor,  one  requires  the  use  of  a  great  deal  of 
capital,  and  the  other  very  little,  the  difficulty  of  attain- 
ment is  not  equal  in  the  two  cases.  Now,  since  difficulty 
of  attainment  controls  supply,  the  supply  of  these  two  arti- 
cles would  soon  become  unequal,  which,  assuming  that  the 
demand  for  both  had  previously  been  the  same,  would  give 
a  higher  value  to  the  former  than  to  the  latter. 

Clearly,  if  we  were  to  use  the  term,  cost  of  production, 
to  express,  not  only  the  amount  of  labor,  but  also  the 
amount  of  capital-power,  going  into  any  article,  it  would 
be  much  nearer  the  truth  to  say  that  cost  of  production  de- 
termines values,  than  to  say  that  labor  determines  values. 

73 


POLITICAL  ECONOMY.  73 

66.  Cost  of  Production. — But  does  the  cost  of  productiou, 
eveu  as  so  coustituted,  determine  values  ?  As  a  matter  of 
fact,  value  is  so  often  almost  the  same  as  the  cost  of  pro- 
duction, and  value  is  so  apt  to  change  as  the  cost  of  pro- 
duction changes,  the  one  rising  and  falling  with  the  other, 
that  it  is  very  natural  to  speak  of  cost  of  production  as 
governing  value.  And,  in  a  general  Avay,  this  is  true;  yet  it 
is  easy  to  show  that  it  is  not  always  the  case. 

For  example,  we  might  suppose  that  a  great  improve- 
ment had  taken  place  in  the  methods  of  making  cotton  or 
woollen  goods  of  a  certain  description,  or  that  mines  of  coal 
or  iron,  far  richer  and  more  convenient  for  working  than 
any  other  before  known,  had  been  discovered.  In  such 
events,  would  the  cotton  cloth  or  woollen  goods,  or  the  coal 
or  iron,  now  in  the  market,  have  their  value  governed,  in 
any  degree,  by  what  it  cost  to  produce  them  ?  Not  at  all. 
These  articles  would  at  once  fall  to  a  new  value,  corre- 
sj)onding  to  the  new  cost  of  producing  articles  like  them. 
No  man  would  pay  four  dollars  a  ton  for  coal,  simply  be- 
cause that  coal  had  cost  four  dollars  a  ton,  if  coal  just  as 
good  could  now  be  brought  in  from  the  mines  at  three 
dollars.  No  man  would  pay  one  dollar  a  yard  for  a  certain 
kind  of  woollen  cloth,  if  the  new  looms  could  turn  out  cloth, 
in  every  way  as  good,  for  eighty  cents. 

67.  Cost  of  Reproduction. — Is  it  not,  then,  the  cost  of 
reproduction,  rather  than  the  cost  of  production  which  de- 
termines value  ?  As  between  the  two,  is  it  not  nearer  the 
truth  to  say  that  it  is  not  what  goods  did  cost,  that  deter- 
mines their  value,  but  what  they  would  cost,  at  the  present 
time  ?  Clearly  this  is  so.  No  man  is  going  to  pay  any- 
thing for  an  article,  merely  because  that  article  did  require 
for  its  production  a  certain  amount  of  labor  and  capital. 
Speaking  generally,  what  he  Avill  give  for  it  will  be  closely 
related  to  what  it  now  costs  to  produce  this  article. 


74  POLITICAL  ECONOMY. 

But  is  it,  even,  the  cost  of  reproduction,  i.e.,  of  keeping 
up  the  supply,  which  determines  the  value  of  articles  ?  No. 
Wliile  it  is  generally  true  that  value  is  close  to  cost  of  re- 
production, the  two  are  often  far  apart.  Take,  for  exam- 
ple, the  old  looms  on  which  the  woollen  goods,  to  which  we 
just  now  referred,  were  woven.  Let  us  say  that  these  cost, 
when  they  were  first  made,  1300,  apiece.  That,  however, 
as  we  saw,  is  no  reason  now  why  they  should  bring  |300. 
Looms  of  the  same  pattern  could,  perhaps,  now  be  made 
for  $250.  Will  these  looms,  therefore,  bring  |350  ?  Not 
at  all.  New  looms,  of  a  better  pattern,  having  been  in- 
vented, perhaps  manufacturers  could  not  afford  to  use  the 
old  looms  unless  they  were  to  obtain  them  at  a  very  low 
price,  say  1100.  Possibly  the  new  looms  might  be  found  so 
much  more  efficient  that  no  manufacturer  could  afford  to 
use  the  old  looms,  at  any  price  ;  and  these  may  therefore 
bring  only  their  value  as  old  iron.  Here  we  have  a  case 
where  an  article  will  sell  neither  for  its  cost  of  production 
nor  for  the  cost  of  its  reproduction. 

Again,  here  is  a  house,  in  a  once  fashionable  street,  which, 
twenty  years  ago,  cost  $25,000.  Yet  the  house,  in  fact, 
could  not  be  sold  for  more  than  $15,000  or  $17,000.  The 
foregoing  are  not  strange,  single  cases.  A  very  large  part 
of  all  the  articles  in  the  world,  which  have  value  at  all, 
would  not  sell  for  what  it  would  cost  to  produce  equally 
good  articles  at  the  present  time. 

What,  then,  is  the  trouble  with  the  statement  so  fre- 
quently made,  that  cost  of  production,  or,  at  any  rate,  the 
cost  of  reproduction,  governs  value?  This  is  the  trouble. 
Cost  of  production  is  only  another  term  for  difficulty  of 
attainment.  Now,  we  saw  (Par.  15)  that  two  elements 
enter  into  value  :  First,  difficulty  of  attainment,  which 
controls  supply  ;  second,  utility,  which  creates  demand. 
To  assert,  then,  that  cost  of  production,  or  cost  of  repro- 


POLITICAL  ECONOMY.  75 

duction,  determines  value,  is  to  say  that  value  is  composed 
of  oue  of  these  elements  only,  and  not  of  both. 

While  the  distinction  we  have  drawn  between  the  cost 
of  production  and  the  cost  of  reproduction  is  one  which 
needs  to  be  kept  always  in  mind  by  the  student  of  polit- 
ical economy,  it  is  much  more  convenient  to  use  the  for- 
mer term  ;  and  this  we  shall  accordingly  do,  throughout 
the  remainder  of  this  treatise.  But  the  reader  is  asked 
to  remember  that,  when  we  speak  of  cost  of  production,  in 
respect  to  any  article  in  the  market,  what  we  have  ref- 
erence to  is,  not  the  past  cost  of  producing  that  identical 
article,  but  the  present  or  immediately  prospective  cost  of 
producing  an  article  so  nearly  like  it  that,  for  commercial 
purposes,  there  will  be  no  difference  between  them.  Past 
labor,  labor  already  spent,  has  no  control  over,  or  influence 
upon,  value.  It  is  only  present  labor,  or  prospective  labor, 
which,  in  any  way,  governs  value.  How  far  it  does  this, 
how  far  it  fails  in  doing  this,  we  shall  see  under  our  next 
title. 

68.  Relation  of  Market  Value  to  Normal  Value. — While, 
for  reasons  stated  in  the  last  paragraph,  it  is  incorrect  to 
say  that  the  cost  of  production  detemimes  actual  value — 
which  we  shall  hereafter  call  "market  value" — we  must 
always  keep  the  idea  of  the  cost  of  production  cleai-ly  in 
mind,  when  speaking  of  the  exchange  of  wealth,  since  it  is 
this  which  determines  ''normal  value,"  a  phrase  we  are 
now  to  explain. 

Market  value  is,  as  has  been  abundantly  stated  and  illus- 
trated, governed  solely  by  supply  and  demand.  Normal 
value  may  be  represented  by  a  line  [though,  by  no  means, 
a  straight  line]  which  market  value  always  tends  to  ap- 
proach, or  to  wliich  it  always  tends  to  return  after  any  de- 
parture therefrom.  If  the  market  value  of  any  article  is, 
at  any  time,  below  the  cost  of  its  production,  some  of  those 


76  POLITICAL  ECONOMY. 

who  have  been  engaged  in  producing  that  article  will  prob- 
ably soon  cease  to  produce  it  at  all ;  others  will  certainly 
produce  less  of  it  than  before.  The  supply  being,  by  these 
means,  reduced, the  market  value  will,  if  the  demand  remains 
the  same,  rise  toward,  or  to,  the  normal  value.  If,  on  the 
other  hand,  the  market  value  is  above  the  cost  of  produc- 
tion, some,  perhaps  all,  who  have  been  producing  this  article 
will  produce  more  of  it,  perhaps  much  more  of  it.  It  is 
even  possible  that  some  persons  who  have  not  been  pre- 
viously engaged  in  producing  this  article,  may  now  under- 
take to  do  so.  The  supply  being,  by  these  means,  in- 
creased, market  value  will  turn  downward,  toward,  or  to, 
the  normal  value. 

Now,  just  as  changes  in  demand,  due  to  the  tastes  or  the 
wants  of  the  community,  or  changes  in  supply  which  can- 
not be  foreseen,  due  to  accidents,  to  fires,  to  floods,  to  short 
crops  and  a  variety  of  other  causes,  are  continually  drawing 
market  value  away  from  the  normal  line,  so  the  self-interest 
of  producers  is  continually  working,  in  the  ways  above  de- 
scribed, to  bring  market  value  back  to  the  normal  line. 
But  the  tenden3y  of  market  value  to  go  away  and  stay 
away  from  the  normal  line  is  greater  in  the  case  of  some 
commodities  than  in  the  case  of  others.  With  some  arti- 
cles, that  tendency  is  very  strong  and  very  persistent. 
With  other  articles  there  are  incessant  slight  fluctuations, 
now  on  the  under,  now  on  the  ujjper,  side  of  the  line  which 
represents  the  cost  of  production.  It  is  important  that  we 
should  dwell  here,  for  a  moment,  upon  the  chief  causes 
which  tend  to  bring  about  and  to  maintain  the  divergence 
of  market  from  normal  value. 

69.  Causes  which  affect  Demand.  —  In  the  first  place, 
we  have  the  causes  which  affect  demand.  There  are  large 
classes  of  articles  the  need  of  which  is  very  steady  and 
constant.     People   always   want   these   articles,    and  gen- 


POLITICAL  ECONOMY.  77 

erally  want  about  so  much  of  them.  If,  from  poverty,  a 
person  had  to  pinch  himself  at  any  point,  he  would  give  up 
almost  anything  sooner  than  any  part  of  what  lie  has  been 
accustomed  to  have  of  these  articles.  Tlie  demand  for 
them,  consequently,  remains  very  steady,  from  week  to 
week  and  from  year  to  year,  perhaps  througli  terms  of 
years.  At  the  other  end  of  the  scale,  there  are  many 
classes  of  articles,  the  demand  for  which  is  very  irregular 
and  uncertain.  In  respect  to  some  of  them,  fashion  enters, 
requiring  incessant  changes  in  form  and  style  and  color. 
Tliat  which  was  the  best,  last  year,  is  scarcely  worth  having, 
this  year.  Sometimes  the  changes  of  fashion  go  so  far  as 
to  throw  an  article  very  nearly  or  altogether  out  of  use. 

There  are  still  other  large  classes  of  articles,  regarding 
w^hich  the  changes  of  demand  are  not  due  to  fashion,  but 
to  the  varying  means  of  those  who  purchase  them.  If 
people  at  any  time  do  without  them,  it  is  not  because  they 
no  longer  desire  them,  but  from  what  is  called  "  want  of 
money."  These  are  articles  which  people  give  up  Avhen 
they  have  to  give  up  anything.  The  desire  for  them  re- 
mains the  same  ;  but  the  demand,  economically  speaking, 
diminishes  or  disappears  altogether. 

Causes  which  affect  Supply. 

Let  us  now  consider  the  causes  which  tend  to  make 
market  value  diifor  from  normal  value,  through  affecting 
the  supply  of  articles.  There  are  many  of  these  ;  but  we 
can  deal  only  with  the  most  important. 

70.  (I)  The  Existence  of  a  Stock. — Suppose  there  were  an 
article  which  was  found  in  a  raw  state,  near  at  hand,  ready 
to  be  cut  down,  or  dug  out,  or  merely  brought  to  market, 
as  required,  at  one  season  just  as  well  as  at  another.  In 
such  a  case,  market  value  would  never  go  far  away,  or  long 


"78  POLITICAL  EGONOMT. 

stay  away,  from  normal  value.  If  demand  fell  off.  pro- 
duction would  fall  off  accordingly  and  promptly.  About 
as  much  as  was  wanted  would  be  brought  in,  day  by  day  ; 
and  every  day's  product  would  have  an  exchange-power 
close  to  its  cost. 

The  conditions  we  have  just  described  are  realized  in  the 
case  of  few  commodities.  With  most  it  is  necessary  to 
have  a  stock,  larger  or  smaller,  on  hand,  at  all  times  ;  and 
the  work  of  production  cannot  go  on  uniformly  throughout 
the  year.  In  some  cases,  articles  can  Ije  grown,  or  others 
brought  to  market,  only  in  a  single  season  of  the  year. 
Maple  sugar  is  produced  within  a  fow  weeks  of  alternate 
thawing  and  freezing,  in  the  spring.  AVood  for  fuel  is 
generally  brought  out  of  the  forest  when  the  snow  is  on  the 
ground,  as  it  is  easier  to  haul  it  on  sleds  than  in  carts. 
On  many  rivers,  logs  can  only  be  floated  down  to  the  saw- 
mills, perhaps  hundreds  of  miles  below,  during  a  very 
short  season,  when  the  streams  are  swollen  by  the  melting 
of  the  snows.  Ice  can  only  be  gotten  out  in  the  depth  of 
winter.  For  the  production  of  some  articles  the  heat  of 
mid-summer  is  required. 

Now,  if  all  the  year's  supply  of  any  article  has  to  be  pro- 
duced or  brought  to  market  in  one  part  of  the  year,  the 
producers  can  only  guess,  and  perhaps  guess  vaguely,  what 
the  demand  will  be  five  or  ten  months  later.  In  the  case 
of  such  industries,  the  supply  cannot  be  readily  checked,  if 
the  demand  falls  oif ;  or  be  quickly  increased,  should  tlie 
demand  prove  greater  than  was  anticipated. 

In  the  case  of  some  important  classes  of  articles,  Mie 
amount  of  production  must  be  determined  on,  not  months, 
but  years  in  advance  of  the  demand.  In  order  that  there 
may  be  bread,  it  is  only  necessary  that  the  baker  shall  have 
time  to  heat  his  ovens.  In  order  that  there  may  be  flour 
it  is  only  necessary  that  the  miller  should  have  a  week's 


POLITICAL  ECONOMY.  79 

notice.  But  in  order  that  there  should  be  wlieat  from 
wliich  to  make  tlie  flour,  the  farmer  must  have  decided,  the 
year  hefore,  how  much  land  he  would  plant  in  wheat  ;  the 
soil  must  have  been  broken  up,  the  seed  sown,  and  the 
growiug  grain  cultivated  through  the  summer.  In  order 
that  there  may  be  a  sufficient  supply  of  wool,  the  sheep- 
raiser  must  have  begun  his  work  two  or  three  years  ago. 
In  order  that  there  may  be  horses  fit  for  draft  or  for  the 
cavalry,  four  or  five  years,  at  least,  are  required. 

71.  (II)  Substitution  of  One  Article  for  Another  in  Use. 
— A  second  cause  whicli  influences  the  divergence  of  market 
value  from  normal  value,  is  found  in  the  varying  degrees  in 
which  different  articles  can  be  substituted  for  others,  in  use, 
should  occasion  arise.  There  are  some  articles  which  have 
almost  no  substitutes.  If  the  person  cannot  get  the  pre- 
cise thing  he  wants,  he  knows  of  nothing  which  would  take 
its  place.  In  the  case  of  other  articles,  there  are  many  pos- 
sible substitutes,  some  of  which  are  nearly  as  good,  while 
some  will  barely  answer  the  purpose.  If,  for  example,  beef 
is  very  scarce,  people  can  use  other  kinds  of  meat,  without 
any  great  loss  of  physical  benefit  or  pleasure.  If  wheat  is 
scarce,  resort  will  be  had  increasingly  to  other  kinds  of 
grain.  And  this  substitution  will  begin  at  once,  and  will 
be  made  almost  unconsciously.  People  who  have  been  us- 
ing wheat  five  days  in  the  week  and  Indian  corn,  or  rye, 
two  days,  will  now  use  Indian  corn,  or  rye,  three  days  in 
the  week,  and  wheat  only  four  days.  In  this  way  the  bal- 
ance will  be  brought  around  again,  or,  at  least,  wheat  will 
be  kept  from  rising  as  high  as  it  otherwise  would. 

On  the  other  hand,  for  most  of  the  uses  of  iron  there  is 
nothing  that  can  be  substituted  for  that  metal,  except  at 
very  much  greater  cost.  Copper  is  worth,  say,  twelve 
times  as  much  as  ii'on  ;  aluminum,  twenty  times  as  much  as 
copper.     Consequently,  if   the  sui)ply  of  iron  proves  defi- 


80  POLITICAL  ECONOMY. 

cieiit,  the  value  of  it  may  rise  higher  and  higher,  through 
a  term  of  years,  without  any  considerable  substitution  of 
other  articles.  There  will,  of  course,  be  less  iron  used, 
since  people  will  put  stone  and  brick  arches  and  wooden 
beams  into  bridges  and  houses,  where,  otherwise,  they 
would  have  used  iron.  But,  in  spite  of  this,  there  will  still 
be  so  much  need  of  iron,  for  a  multitude  of  purposes,  that 
the  value  of  the  stock  might  be  doubled  before  a  new  sup- 
ply could  be  brought  in. 

72.  (Ill)  Organization  of  Industry. — We  have  elsewhere 
shown  how  the  organization  of  industry  increases  the  possi- 
ble production  of  wealth.  The  same  cause,  however,  tends  to 
put  apart,  and  to  keep  apart,  market  value  and  normal 
value.  Where  a  community  has  been  organized  into  a  great 
number  of  trades  and  professions,  each  person  being  highly 
expert  in  his  own  particular  business,  or  craft,  but  knowing 
little  or  nothing  of  others,  it  is  far  less  easy  to  increase  pro- 
duction if  the  supply  be  deficient,  or  to  check  production 
if  the  supply  be  in  excess,  than  in  a  community  where  arts 
and  trades  are  few  and  simple,  and  each  man  is  more  capa- 
ble of  turning  himself,  should  occasion  arise,  to  some  other 
kind  of  work.  Self-interest  will  still  enter,  to  check  pro- 
duction or  to  increase  it,  according  to  the  "state  of  the 
market,"  i.e.,  according  to  demand  ;  but  this  will  be  done 
much  less  promptly  and  effectively,  for  the  reason  which 
has  been  stated.  Men  will  go  on  working  in  the  business 
to  which  they  are  accustomed,  long  after  the  remuneration 
they  receive  has,  through  a  decline  in  demand,  fallen  below 
the  remuneration  of  equal  exertions  and  sacrifices  in  other 
branches  and  industries. 

73.  (IV)  Investment  of  Capital — Existence  of  Plant. — In 
the  same  way,  the  need  of  extensive  buildings,  fixtures,  ma- 
chinery and  apparatus,  for  tJie  production  of  certain  classes 
of  commodities,  may  prevent  a  rapid  increase  in  the  supply 


POLITICAL  ECONOMY.  81 

cf  those  commodities,  to  correspond  to  a  rapid  increase  of 
demand,  should  such  take  place.  Thus  it  happens  that 
market  value,  in  these  lines,  may  remain  a  long  while  above 
normal  value,  in  spite  of  all  which  the  principle  of  self- 
interest  can  do  towards  bringing  the  two  kinds  of  value 
together. 

On  the  other  hand,  the  fact  that  a  large  body  of  so- 
called  "  plant,"  i.e.,  structures,  fixtures,  etc.,  suited  to  the 
production  of  certain  goods  and  of  no  others,  is  in  exist- 
ence, may  retard  the  movement  of  market  values  upward 
to  the  normal  line,  in  cases  where  a  great  falling-off  in  de- 
mand has  lowered  the  value  of  such  goods  below  the  cost 
of  production.  Inasmuch  as  the  plant  is  there,  and  can  be 
used  for  nothing  else,  manufacturers  may  go  on  producing, 
even  though  they  get  almost  nothing  for  the  use  of  the 
plant,  after  paying  the  wages  of  labor  and  the  cost  of  mate- 
rials. 

It  may  even  happen  that  the  existence  of  plant,  in  a 
large  amount,  constitutes  a  sort  of  necessity  to  produce. 
Thus,  in  the  case  of  work  being  stopped  in  a  mine,  the 
shafts  and  galleries  might  in  a  few  weeks  be  filled  with 
water,  which  it  would  require  much  time  and  great  expense 
to  pump  out  when  work  should  be  resumed.  It  might, 
therefore,  happen  that  a  mine  OAvner,  rather  than  allow  his 
mines  to  fill  up,  would  go  on,  for  a  while,  producing  at  a 
loss,  that  is,  not  even  getting  back  all  the  wages  paid  and 
all  the  materials  consumed.  In  the  same  way,  it  not  un- 
frequently  happens  that  an  iron  manufacturer  for  a  while 
produces  at  a  loss,  rather  than  allow  his  furnaces  to  "  go 
out  of  blast." 

The  degree  to  which  the  foregoing  cause  operates  differs 
widely  in  different  industries.  In  some,  the  amount  of 
plant  required  for  a  certain  product  is  very  small ;  in  others 
it  is  very  large.     Even  among    those  industries  where  the 


82  POLITICAL  ECONOMY. 

plant  is  large,  there  is  a  great  difference  as  to  the  length  of 
time  required  to  extend  it ;  as  to  tlie  amount  of  "  wear  and 
tear  "  whicli  is  involved  in  its  regular  daily  use  ;  and  as  to 
the  injury  likely  to  result  from  a  stoppage  of  the  works. 

74.  (V)  Liability  to  Deterioration  of  Product. — Still  an- 
other cause,  which,  in  the  case  of  many  articles,  has  the  effect 
to  exaggerate  deviations  of  market  value  from  the  normal 
line,  is  found  in  a  liability,  greater  or  less,  to  deterioration 
of  the  product.  Thus,  in  a  fish  market,  the  price  of  a  fish 
might  have  been  a  shilling  when  the  market  opened,  eight- 
pence  at  ten  o'clock,  sixpence  by  noon,  Avhile  in  the  after- 
noon one  could  have  it  almost  on  his  own  terms.  Straw- 
berries and  peaches  are  often  sold,  at  night,  at  one-half  or 
one-third  of  the  morning  price.  The  necessity  of  storage, 
in  the  case  of  a  postponed  sale,  has  often  the  same  influence 
on  the  price  of  a  commodity  as  liability  to  deterioration. 
The  dealer,  not  having  the  facilities  for  storing  his  stock, 
may  let  it  go  at  a  very  low  price,  rather  than  keep  it  over. 

75.  (VI)  Customary  Price. — In  respect  to  certain  com- 
modities, public  opinion  dictates  that  there  shall  be  a  cer- 
tain, stated,  well-known  price.  Thus,  people  would  not 
tolerate  varying  and  uncertain  prices  of  admission  to  places 
of  public  amusement ;  varying  or  uncertain  tolk  over 
bridges,  or  fares  in  public  conveyances  ;  varying  and  un- 
certain fees  for  the  performance  of  necessary  services.  To 
have  to  haggle  and  bargain  at  the  door  of  a  theatre,  over 
the  price  of  admission ;  on  the  brink  of  a  river,  as  to  the 
sum  to  be  paid  for  a  cast  across  the  stream ;  in  the  sick- 
room, about  the  fee  for  a  prescription,  or  the  cost  of  the 
medicine  that  should  save  life  or  relieve  pain,  these  things 
would  be  intolerable.  Hence,  public  opinion  generally 
establishes  a  price,  for  all  such  occasions,  which  is  irresiDcc- 
tive  alike  of  the  service  rendered  to  the  individual  buyer, 
and  of  the  cost,  to  the  seller,  of  rendering  that  service  ia 


POLITICAL  ECONOMY.  83 

the  particular  case.  For  instance,  a  traveller  would  give  a 
large  sum  of  money,  rather  tliau  pass  the  night  in  a  storm 
on  a  river  bank;  3'et  he  gets  a  cast  across,  at  the  customary 
price,  he  that  twopence  or  a  shilling.  On  the  other  hand, 
the  ferryman  or  boatman  makes  a  much  greater  sacrifice  in 
taking  the  passenger  over  at  night,  in  a  storm,  than  if  it 
were  in  the  afternoon  of  a  pleasant  clay;  yet  public  opinion 
requires  him  to  subject  himself  to  the  greater  sacrifice, 
without  any  higher  charge. 

Where  public  opinion  cannot  be  trusted  to  establish  a 
customary  price,  in  cases  like  the  above,  the  law  generally 
enters  and  fixes  the  rate.  Of  course,  the  price  paid  must 
be  enough,  on  the  whole,  to  make  it  worth  while  to  keep 
up  the  service,  whether  of  the  apothecary,  the  physician, 
the  ferryman,  the  actor  or  the  opera  singer.  But  the  price 
to  be  paid  is  made  independent  of  the  wealth  or  the  pov- 
erty, the  knowledge  or  the  ignorance,  the  little  or  the  great 
need,  of  the  individuals  purchasing. 

76.  (VII)  Habit  and  Mental  Inertia.— The  last  of  the 
causes  whicli  we  shall  mention,  as  resisting  the  effort  of 
market  value  to  return  to  the  normal  line,  is  found  in  the 
force  of  habit  and  in  the  lack  of  what  is  called  "initiative," 
on  the  part  of  many  or  most  persons. 

No  human  being  ever  escapes  altogether  from  the  force 
of  habit.  It  is  always  easier  to  do  what  we  have  done  be- 
fore, than  to  do  what  we  have  never  done;  to  do  what  we 
have  done  twice,  than  to  do  what  we  have  done  only  once  ; 
to  do  what  we  have  done  often,  than  to  do  what  we  have 
done  seldom.  The  degrees,  however,  in  which  men  are 
bound  by  habit,  or  in  which  they  are  indisposed  to  do 
what  is  not  familiar  to  them,  differ  widely.  A  capability 
of  taking  the  initiative  in  action,  mental  courage  and  ac- 
tivity, freedom  from  apprehension  and  superstition,  a 
readiness  to  meet  new  conditions,  and  perhaps  even  a  pleas- 


84  POLITICAL  ECONOMY. 

lire  in  encountering  risks  and  odds,  are  among  the  fmita 
of  education  and  experience.  Thej  become  an  inheritance 
in  families,  and  even  a  characteristic  of  nations  and  races. 

The  effects  of  habit  upon  values  are  very  important. 
Habit  always,  in  some  degree,  often  in  a  great  degree, 
resists  the  economic  tendency  to  a  new  price.  This  effect 
is  seen  at  its  height  in  wages,  the  price  of  labor.  A  day's 
wages  often  remain  the  same  through  months,  sometimes 
through  years,  although,  in  fact,  the  utility  of  the  service 
rendered  to  the  employer  changes  frequently  in  that  time. 

Over  the  prices  of  goods  habit  exerts  an  influence  no  less 
real,  though  not  equally  powerful.  It  often  keeps  prices 
steady,  against  an  economic  reason  for  change ;  and,  even 
when  movement  takes  place,  it  begins  later  and  ceasef 
earlier,  by  means  of  this  constant  resistance. 


CHAPTER  X. 

PRODUCTION  AT  THE  GREATEST  DISADVANTAGE. 

77.  Relation  of  Cost  of  Production  to  Value. — In  the 
last  chapter,  we  undertook  to  reach  the  relation  between 
Vahie  and  the  Cost  of  Production.  What  we  found  Avas 
that  Cost  of  Production  determines  Normal  Value,  which 
actual  or  Market  Value  continually  tends  to  approach, 
though  frequently  drawn  away,  and  often  kept  long  away, 
by  various  causes,  alfecting  supply,  or  demand,  or  both. 

We  have  now  to  take  another  step  in  the  theory  of  value. 
We  have  thus  far  assumed  that  all  parts  of  the  required 
production  take  place  under  conditions  of  equal  advantage 
as  to  cost,  so  that  the  normal  value  of  any  kind  of  goods 
would  be  the  cost  of  producing  any  part  of  the  supply. 
But,  in  fact,  of  the  four  grand  agents  of  production,  land, 
labor,  capital  and  business  ability  (see  par.  55),  two,  the  first 
and  the  last  named,  have,  by  force  of  nature,  a  wide  range 
as  to  productive  power,  from  which  it  results  that  diiferent 
portions  of  the  required  supply  of  a  certain  kind  of  goods 
nKW  differ  widely  as  to  their  several  costs  of  production. 

78.  Equality  of  Conditions  as  to  Labor  and  Capital. — To 
illustrate  this  rudely,  let  us  suppose  a  certain  district  to  bo 
divided  into  a  hundred  large  farms,  each  farmer  employ- 
ing fifty  men,  and  having  at  command  $10,000  of  capital. 
Now,  we  may,  for  the  purposes  of  reasoning,  assume  the 
body  of  laborers  and  the  body  of  capital  upon  any  one  farm 
to  be  the  exact  equivalents  of  tlie  corresponding  bodies 


86  POLITICAL  ECONOMY. 

upon  any  other  farm.  Of  course  this  might  not,  probably 
would  not,  be  literally  the  case,  so  far  as  the  bodies  of 
laborers  are  concerned.  One  set  of  laborers  might,  as  it 
happened,  be  a  little  poorer  than  those  employed  upon  a 
neighboring  farm.  But  there  would  be  nothing  in  the 
nature  of  the  case  why  an  inferior  set  of  workmen  should 
be  found  upon  one  farm  more  than  upon  another.  This 
would  be  purely  one  of  those  accidents  which,  for  the  pur- 
poses of  reasoning,  we  are  bound  to  set  aside. 

As  to  the  capital, we  have  no  need  to  offer  any  qualification 
of  our  assumption  that  the  several  sums  of  $10,000  are  the 
precise  equivalents  of  each  other.  There  would  be  just  as 
many  ploughs  and  horses,  just  as  many  carts  and  oxen, 
just  as  much  food  and  clothing  for  the  subsistence  of  la- 
borers, just  as  much  money  for  wages,  in  one  110,000,  as  in 
any  other. 

79.  Inequality  of  Conditions  as  to  Land. — But  if,  now, 
we  suppose  these  equal  bodies  of  labor  and  capital  to  be 
aj^plied  to  the  raising  of  crops,  shall  we  find  that  the  con- 
ditions of  production  continue  equal  ?  By  no  means.  We 
shall  find  differences,  very  considerable  differences  :  and 
these,  not  occurring  through  accidents  which  we  may  dis- 
regard, as  having  nothing  to  do  with  the  reason  of  the 
case  ;  but  differences  due  to  the  very  nature  of  the  subject ; 
differences  which  cause  some  portions  of  the  supply  to  be 
produced  at  a  great  advantage,  while  other  portions  are 
produced  at  a  great  disadvantage.  It  is  to  fiiuling  out 
how  these  differences  in  the  cost  of  production  affect  nor- 
mal value,  that  we  devote  the  present  chapter. 

Wliat  is  the  cause  of  the  differences  which  we  have  indi- 
cated as  certain  to  arise  whenever  equal  bodies  of  labor  and 
capital  are  applied  to  the  raising  of  crops  ?  That  origin  is 
two-fold.  In  part,  it  is  found  in  the  varying  productive- 
ness of  the  soil.     Those  variations,  if  we  contemplate   any 


POLITICAL  ECONOMY.  87 

wide  field  of  industry,  are  not  small,  but  large  ;  they  are 
not  accidental,  but  are  in  the  nature  of  the  case.  The 
fifty  laborers  working  upon,  say,  farm  No.  31,  may  be  as- 
sumed to  be  the  equivalent  of  the  fifty  laborers  working 
upon  farm  No.  5,  or  upon  farm  No.  64  ;  but  farm  No.  31 
will  only  yield  15  bushels  of  wheat,  per  acre,  while  No.  5 
will  yield  18  bushels,  and  farm  No,  64  will  yield  34  bushels. 
These  differences  in  product  do  not  come  from  the  laborers  ; 
they  come  from  the  soil  ;  and  such  differences  as  we  have 
indicated  above  are  not  extreme.  There  are  farms,  among 
the  hundred,  which  will  yield  less  than  15  bushels ;  and 
there  are  others  wliicli  will  yield  more  than  24  bushels. 

80.  Inequality  of  Conditions  as  to  Business  Ability. — 
Then,  again,  were  we  to  suppose  that  there  were  certain 
farms,  absolutely  equal  in  their  productive  power,  we  might 
be  assured  that  there  would  be  found  differences,  very  con- 
siderable differences,  among  the  farmers  occupying  and  cul- 
tivating them,  as  to  the  ability  to  control  and  direct  bodies 
of  labor  and  of  capital  for  the  production  of  wealth:  dif- 
ferences as  to  the  degree  of  care  and  foresight,  of  energy  and 
economy,  of  commercial  prudence  and  administrative  skill. 
Such  differences  in  the  farmers  would  come  out  in  the 
crops,  were  the  lands  the  same,  the  laborers  the  same,  the 
capital  the  same. 

It  is  true  that  the  abler  farmers  would  tend,  little  by 
little,  to  bring  into  their  employment  the  best  laborers  ;  but 
it  is,  also,  true  that,  with  the  very  same  laborers,  they  would 
get  a  better,  some  of  them  a  much  better,  result  than  the 
less  efficient  farmers.  It  is  true  that  accidents  and  mis- 
fortunes, of  one  kind  or  another,  would  come  to  all  the 
farmers  in  the  county — floods  or  droughts  or  fires  or  ver- 
min or  rust  or  mildew,  or  what  not ;  but  it  is,  also,  true, 
that,  in  the  first  place,  fewer  of  tiiese  calamities  would, 
in  the  long  run,  fall  upon  the  far-seeing  and  painstaking 


88  POLITICAL  ECONOMY. 

farmer  than  upon  his  less  diligent  and  prudent  neighbor  ; 
secondly,  tliat  those  which  did  come  would  fall  with  less 
force ;  and,  thirdly,  that  the  resulting  mischief  would  be 
more  quickly  repaired  and  remedied  in  the  former  than  in 
the  latter  case. 

81.  Production  at  the  Greatest  Disadvantage  determines 
Normal  Value. — Now,  with  differences  existing  as  to  the 
conditions  of  production,  both  as  regards  the  fertility  of 
the  land  and  as  regards  the  degree  of  business  ability,  what 
shall  determine  normal  value  ?    I  answer  : 

The  normal  value  of  any  kind  of  goods  is  deter- 
mined BY  THE  COST  OF  PRODUCTION  OF  THAT  LAST  CON- 
SIDERABLE PORTION  OF  THE  NECESSARY  SUPPLY  WHICH  IS 
PRODUCED  AT  THE  GREATEST  DISADVANTAGE. 

Let  us  proceed  in  this  matter  by  successive  illustrations. 
Wheat  is  raised  upon  some  lands,  in  England,  at  a  cost  not 
exceeding  two  shillings,  a  bushel.  Is  this  wheat,  there- 
fore, sold  at  two  shillings  ?  Does  it  even  tend  to  be  sold 
at  that  price?  Is  there  any  economic  force,  whatever, 
which  operates  to  compel,  or  to  induce,  the  farmer  to  sell 
that  wheat  at  that  price,  or  somewhere  near  it  ?  All  these 
questions  are  to  be  answered  by  a  simjole  no.  The  cost  of 
production  in  this  case  has  absolutely  no  connection  what- 
ever with  the  price.  Did  anybody  ever,  in  these  days, 
hear  of  good  wheat  being  sold  in  Mark  Lane,  London,  at 
two  shillings  a  bushel  ?  Yet  there  are  lots  of  it  produced 
at  a  cost  below  two  shillings. 

Again,  there  is  a  vast  extent  of  lands  on  which  wheat  is 
raised  at  the  cost  of  three  shillings  a  bushel.  Is  this  Avheat 
sold  at  three  shillings,  or  does  it  tend  to  be  ?  Again,  no. 
Still  further,  there  are  lands  on  which  wheat  is  raised  at 
the  cost  of  four  shillings,  and  others,  still,  on  which  it  is 
raised  at  the  cost  of  five  shillings  ;  but  the  jn'oduct  is  not 
sold  at  a  price  equal  to  the  cost  of  production,  or  in  any 


POLITICAL  ECONOMY.  89 

way  corresponding  to  it.  What,  then,  does  fix  the  price  of 
what  we  may  call  the  two-shilling  wheat,  the  three-shilling 
wheat,  the  four-shilling  wheat,  the  five-shilling  wheat  ?  I 
answer,  it  is  the  cost  of  raising  "  that  last  considerahle  por- 
tion of  the  necessary  supjjii/  which  is  j^roduccd  at  the  great- 
est disadvantage."  Let  us  suppose  that  there  are  ten  mil- 
lion bushels  of  the  two-shilling  wheat,  tweuty  million  bush- 
els of  the  three-shilling  wheat,  thirty  million  bushels  of  the 
four-shilling  wlieat,  forty  million  bushels  of  the  five-shilling 
wheat.  We  should  then  have  one  hundred  million  bushels 
produced  at  the  cost  of  five  shillings,  or  less.  But  let  it  be 
supposed  that  the  demand  for  wheat  exceeds,  and  tends 
considerably  to  exceed,  this  amount.  Just  how  much  the 
demand  shall  exceed  a  hundred  million  bushels,  will,  of 
course,  depend  upon  the  price.  Let  us  suppose,  for  in- 
stance, that  there  are  enough  people  who  want  wheat, 
and  who  want  enough  wheat,  and  who  want  wheat  badly 
enough,  to  make  up  an  effective  demand  for  a  hundred  and 
thirty  million  bushels,  at  not  exceeding  six  shillings.  If 
then,  the  next  grade  of  land,  that,  viz.,  which  will  yield 
wheat  at  the  cost  of  six  shillings,  were  extensive  enough  to 
produce,  if  required,  fifty  million  bushels,  we  should  have 
the  normal  price  of  wheat,  on  these  conditions,  fixed  at  six 
shillmgs,  a  bushel.  This  price  would  Just  repay  the  cost  of 
cultivation  on  the  last  grade  of  soils,  yielding  no  profit.* 
That  price  would  equally  be  paid  for  all  other  portions  of 
the  supply  of  wheat,  yielding  profits  which  would  repre- 
sent the  difference  between  the  cost  and  the  price.  To 
whom  this  profit  shall  go,  is  a  question  which  it  would  be 
premature  to  raise  at  this  point.     Only  a  portion  jf  the  six- 

*I  use  the  word,  profit,  for  the  present,  iu  its  generic  sense. 
Such  profit,  in  the  case  of  land,  will  hereafter  be  specifically  called 
rent. 


90  POLITICAL  ECONOMY. 

shilling  land  would  be  cultivated.  No  part  of  the  seven- 
shilling,  or  the  eight-shilling  land  would  be  brought  into 
use. 

82.  Take  Silver  Mining  as  an  Illustration. — Silver  is  pro- 
duced, in  not  a  few  mines,  at  the  cost  of  twenty-five  cents, 
an  ounce,  or  less  ;  but  it  is  not,  on  that  account,  sold  for 
twenty-five  cents.  If  the  demand  for  silver,  for  use  as 
money  or  in  the  arts,  be  sufficient  to  fix  the  price  at  one 
dollar,  silver  will  be  produced  at  what  we  may  call  the 
twenty-five  cent  mines,  the  fifty-cent  mines,  the  seventy- 
five-cent  mines  and  the-one  dollar  mines  ;  but  it  will  all  be 
sold  at  the  same  price,  namely,  one  dollar.  The  last  class 
of  mines  will  yield  no  profit,  but  only  pay  for  the  working; 
while  the  other  classes  of  mines  will  yield  a  profit  on  their 
product  of,  respectively,  seventy-five,  fifty  and  twenty-five 
cents,  an  ounce.  Nobody  thinks  of  ofPering  Mr.  Mackey 
or  Mr.  Haggin  twenty-five  cents,  an  ounce,  for  his  silver, 
merely  because  it  cost  only  that  sum.  All  the  silver  pro- 
duced is  sold  at  the  same  price  in  the  same  market.  That 
price  is  fixed  by  the  cost  of  production  from  the  mines  the 
least  rich  in  their  deposits,  or  the  most  expensive  to  operate, 
which  the  existing  demand  requires  to  he  worked  in  order  to 
secure  the  necessary  supply.  The  demand  being  no  greater 
than  it  is,  the  doUar-and-a-quarter  mines  and  the  dollar- 
and-a-half  mines,  of  which  there  are  a  great  number,  will  not 
be  worked,  any  more  than  Avill  be  the  two-dollar,  the  three- 
dollar  and  the  four-dollar  mines,  which,  between  them, 
contain  an  immense  amount  of  silver,  very  much  scattered. 

In  like  manner,  we  might  go  over  the  whole  ground  of 
the  articles  known  to  the  market,  finding,  in  every  case, 
that  normal  price  is  fixed  by  the  habitual  average  cost  of 
producing  "that  last  considerable  portion  of  the  supply 
which  is  produced  at  the  greatest  disadvantage  ;"  while,  in 
every  case,  likewise,  all  other  portions  of  the  supply  are 


POLITICAL  ECONOMY.  91 

sold  at  the  same  price,  whatever  their  individual  cost  of 
production,  yielding  a  profit,  the  disposition  of  which  we 
shall  have  occasion  to  investigate  when  we  reach  the  sub- 
ject of  the  Distribution  of  Wealth. 

83.  Varying  Productiveness  as  to  Business  Ability. — We 
have  thus  far  shown  the  effect,  upon  normal  value,  of  vary- 
ing productiveness  in  the  lands  under  cultivation  for  the 
supply  of  the  market.  We  are  now  to  consider  the  effect, 
upon  normal  value,  of  varying  productiveness  in  the  per- 
sons engaged  in  the  direction  and  control  of  labor  and 
capital. 

In  doing  so,  let  us  proceed,  as  before,  by  illustration. 
Let  us  take  the  case  of  the  manufacture  of  cotton  goods. 

We  may  suppose  that  the  present  price  of  the  staple  is 
ten  cents,  which,  throwing  transportation  out  of  sight, 
represents  the  cost  of  its  production  at  the  greatest  disad- 
vantage, that  is,  on  the  least  fertile  lands  devoted  to  this 
crop.  Portions  of  the  cotton  may,  indeed,  have  paid  a 
profit  (rent)  of  one  cent,  or  two  cents,  or  three,  or  four,  a 
pound,  to  the  owners  of  rich  lands  ;  but  of  this  the 
manufacturers  of  cotton  goods  know  nothing,  and  for  this 
they  care  nothing.  The  only  fact  with  which  they,  as 
manufacturers,  are  concerned,  is  that,  the  demand  for  cot- 
ton being  what  it  is,  cultivation  has,  to  satisfy  that  demand, 
been  carried  downward  to  a  certain  grade  of  soils,  cost  of 
production  upon  which  has  determined  the  price,  ten  cents, 
which  they  find  ruling  in  the  market.  This  price  all  manu- 
facturers, capable  or  incapable,  are  equally  obliged  to  pay, 
so  that  all  start  on  an  equality  as  regards  the  cost  of  their 
materials.  In  the  cost,  to  them,  of  the  labor  requisite  to 
production,  they  are  also  substantially  on  an  equality.  We 
have,  also,  a  right  to  assume  them  to  stand  on  the  same 
footing  as  regards  the  loan  of  capital  and  the  price  to  be 
paid  for  its  use,  namely,  interest. 


92  POLITICAL  ECONOMY. 

If,  now,  we  contemplate  a  body  of  manufacturers,  fifty, 
or  a  hundred,  in  number,  supplying  the  same  market,  what 
is  to  determine  the  normal  price  of  that  kind  of  goods  ? 
According  to  the  principle  we  have  already  ascertained,  it 
must  be  the  cost  of  production  of  that  last  considerable 
portion  of  the  necessary  supply  which  is  produced  at  the 
greatest  disadvantage.  But  how  should  there  be  any  such 
thing  as  advantage  or  disadvantage,  in  respect  to  produc- 
tion, since  all  stand  on  a  level  as  regards  the  prices  of  ma- 
terials, the  rate  of  interest,  the  wages  of  labor  ?  I  answer, 
differences  will  be  developed,  from  the  very  earliest  begin- 
nings, in  respect  to  the  degree  of  business  ability  with 
which  these  forces  will,  by  these  manufacturers,  be  applied 
to  these  materials,  for  the  production  of  this  kind  of 
wealth  ;  and  those  differences  will  be  large,  and,  except  for 
the  operation  of  accident  or  fraud,  will  be  measurably  con- 
stant. In  any  body  of  twenty,  fifty,  or  one  hundred  manu- 
facturers, there  will  be  some  who  will  produce  more  ;  others 
who  will  produce  much  more  ;  still  others  who  will  produce 
very  much  more,  of  wealth,  in  the  form  of  cotton  goods, 
than  certain  members  of  that  body  who  employ  the  same 
amount  of  labor  and  capital. 

84.  How  one  Manufacturer  Produces  More  of  Values 
than  Another. — This  excess  of  values  produced  by  certain 
manufacturers  over  those  produced  by  others,  less  success- 
ful, in  the  same  line  of  business,  may  be  brought  about  in 
many  and  various  ways.  It  may  be  through  greater  care 
of  materials,  from  the  day  of  ])urchase,  through  the  time  of 
storage  and  through  all  the  successive  processes  of  produc- 
tion, down  to  the  day  the  goods  are  sold.  It  may  be,  by 
more  of  organizing  and  energizing  power,  enabling  certain 
manufacturers  to  select  always  the  right  man  for  the  place; 
to  correlate  all  the  parts  of  the  service  and  subordinate 
everything  to  the  supreme  end  in   view  ;    to  create   and 


POLITICAL  ECONOMY.  93 

maintain  throughont  their  entire  force  a  spirit  of  earnest, 
euthnsiastic  work.  It  may  be,  through  ingenuity  in  de- 
vising expedients  and  meeting  exigencies  of  a  mechanical 
nature.  It  may  be,  through  skill  and  taste  in  producing 
better  designs  or  a  higher  finish  of  goods.  It  may  be, 
through  a  sound  judgment  regarding  tlie  present  and  pros- 
pective demands  of  the  market,  and  a  sort  of  prescience  in 
anticipating  great  and  sudden  changes  of  condition.  It 
may  be  tlirougli  an  instinctive  sense  of  character,  gOTcrn- 
ing  the  decision,  to  what  persons  goods  sliall  be  sold,  and 
on  what  times  and  terms  of  credit.  By  one,  or  several,  or 
all  combined,  of  these  and  other  ways  of  reaching  the  result 
in  view,  viz.,  the  largest  possible  creation  of  values  by  the 
use  of  a  given  amount  of  labor  and  of  capital,  it  will  inevi- 
tably come  about  that  the  members  of  any  considerable 
body  of  producers  in  the  same  line,  under  external  condi- 
tions substantially  the  same,  will  be  stretched  out  over  a 
very  wide  scale. 

85.  Production  by  the  Least  Competent  Employers  Deter- 
mines Normal  Value. — In  such  a  state  of  things,  what  con- 
stitutes production  at  the  greatest  disadvantage?  I  answer, 
it  is  production  by  the  least  competent  employei-s.  It  is 
the  cost  of  their  production,  therefore,  which  determines 
the  normal  value  of  that  kind  of  goods,  at  that  time,  for 
that  market.  The  demand  is  such,  by  the  very  statement 
of  the  case,  as  to  require  production  by  all  these  manufac- 
turers :  otherwise  the  least  successful  of  them  would  already 
have  ceased,  or  would  speedily  cease,  to  produce.  Since 
the  demand,  however,  is  sufficient  to  keep  them  all  pro- 
ducing, that  demand  must  determine  a  price  for  those 
goods  which  will  repay  the  cost  of  production  at  the  great- 
est disadvantage,  that  is,  by  the  least  competent  producers. 

Demand  will  not,  however,  under  ordinary  conditions, 
that  is,  normally  (which  is  the  state  of  which  wo  are  speak- 


^4  POLITIOAL  ECONOMY 

ing]  fix  a  price  which  will  more  than  repay  this  cost  of  pro- 
duction at  the  greatest  disadvantage.  Exceptional  circum- 
stances may  indeed,  arise,  under  which  demand  will  be  so 
highly  stimulated  as  to  raise  the  price  to  a  point  where  all 
producers,  highest  and  lowest,  shall,  for  the  time,  obtain, 
by  the  sale  of  their  goods,  a  surplus  over  the  cost  of  pro- 
duction, that  is,  profits.  If,  however,  this  state  of  things 
lasts  long,  or  promises  to  become  permanent,  other  persons 
will  be  tempted  to  come  into  the  business,  or  those  already 
in  the  business  will  as  quickly  as  possible  enlarge  their 
plant,  to  take  advantage  of  the  situation.  There  will  thus 
be  a  constant  tendency  [Avhich  is  what  we  mean  when  we 
speak  of  what  is  normal,  in  production  or  trade],  to  bring 
value  down  to  the  cost  of  production  at  the  greatest  disad- 
vantage, that  is,  production  by  the  least  competent  pro- 
ducers actually  contributing  to  the  supply  of  the  market. 


CHAPTER  XL 

MONEY :  THE  MEDIUM  OF  EXCHANGE. 

86.  Difficulties  of  Barter, — We  have  thus  far  spoken  of 
the  exchauge  of  wealth,  as  if  tlie  different  producers  ex- 
changed their  products  directly  with  each  other  :  carpenters, 
blacksmiths,  masons,  tailors,  now  working  for  each  other, 
now  working  for  fishermen,  hunters,  or  tillers  of  the  soil, 
and  receiving  from  them,  in  return,  fish,  flesh,  grain,  or 
fruits.  Such  a  direct  exchange  of  services  or  of  products 
does,  indeed,  take  place  in  a  primitive  community  ;  and, 
even  in  the  most  advanced  communities,  it  continues  to  take 
place  to  a  certain  extent.  But  this  direct  exchange,  which 
we  call  barter,  or  truck,  is  effected  with  much  difficulty, 
even  in  primitive  communities  ;  and  that  difficulty  increases 
very  rapidly  as  occupations  become  multiplied  and  as  the 
services  or  products  to  be  exchanged  increase  in  variety. 

87.  Double  Coincidence  of  Wants  and  of  Possessions. — The 
difficulty  referred  to  is  the  difficulty  of  securing  a  double 
coincidence  of  wants  and  of  possessions.  The  phrase  just 
used  is  a  long  one  ;  but  the  thing  itself  is  easily  understood. 
"Where  the  division  of  labor  has  gone  a  great  way,  a  pro« 
ducer  will  wish  to  consume,  or  personally  enjoy,  only  a 
part,  and  that  a  very  small  part,  of  what  he  himself  pro- 
duces. The  rest  of  his  product  he  expects  to  see  consumed 
by  others,  from  whom,  in  turn,  he  looks  to  receive  the 
particular  things  which  he  desires  to  consume  or  en- 
joy.    'So  far,  the  conditions  of  an  exchange  are  met.     But 

95 


90  POLITICAL  ECONOMY. 

when  any  producer  actually  goes  about  to  make  those  ex- 
changes, he  may  have  to  spend  a  great  deal  of  time  and 
walk  a  great  way,  in  order  to  find  a  person  who  hoth  has 
ichat  he  wants,  and  wanfs  ivhat  he  has.  He  may  find 
many  who  have  what  he  wants,  but  do  not  want  what  he 
has,  and  many  more  persons  who  want  what  he  has,  but 
who  have  not,  also,  that  which  he  wants,  before  lie  will  find 
one  person  between  whom  and  himself  exists  that  '"'double 
coincidence  of  wants  and  of  possessions"  of  which  we 
spoke.  This  difficulty  might  often  be  found  so  great  as  to 
compel  a  man  to  expend  more  time  and  effort  in  exchang- 
ing his  product  than  in  making  it. 

88.  Difficulty  of  "Making  Change." — Another  obstacle 
which  is  encountered  in  direct  exchange,  or  barter,  in  the 
case  of  many  articles,  arises  from  the  difficulty,  or  even  the 
impossibility,  of  so  dividing  products  as  to  make  a  fair  ex- 
change. If  three  hats  be  worth  five  bushels  of  wheat,  an 
exchange  will  be  easy  enough,  provided  the  man  wlio  has 
hats  wants  wheat,  and  the  man  who  has  wheat  wants  a  hat. 
A  hat  will  be  given  for  one  bushel,  two  pecks  and  about 
five  quarts  of  wheat;  and  both  parties  will  be  satisfied. 
But  if  three  hats  are  worth  four  pairs  of  shoes,  an  exchange 
will  be  impossible,  unless  one  party  takes  more  hats,  and 
the  other  party  more  shoes,  than  he  needs.  This  difficulty, 
again,  would  often  go  so  far  as  to  render  direct  exchange 
impossible. 

89.  Need  of  a  Common  Denominator  of  Values. — A  third 
obstacle  to  barter  would  be  found  in  the  difficulty  which 
producers  would  experience  in  finding  out  for  how  much 
of  the  various  products  of  others  a  certain  quantity  of  their 
own  product  ought  to  exchange. 

This  obstacle  to  barter  is  not  a  fanciful  one.  In  a  com- 
munity where  direct  exchang  was  the  rule,  each  article 
in  the  market  would  have  to  be  quoted  in  terms  of  every 


POLITICAL  ECONOMY.  97 

other,*  or,  else,  every  producer  would  be  obliged  to  work  out 
a  long  "rule  of  three"  sum,  to  tell  for  how  much  of  his 
owu  product  a  certain  amount  of  any  other  man's  product 
ought  to  exchange. 

Let  us  take  a  simple  case,  a  very  simple  case,  an  almost 
impossibly  simple  case.  Let  it  be  supposed  that  a  man, 
who  wishes  to  exchange  sugar  for  tacks,  finds  out,  by  in- 
quiry in  the  market,  that  one  pound  of  tobacco  has  that 
day  been  exchanged  for  four  pounds  of  flour  ;  one  pound 
of  flour  for  half  a  pound  of  tacks ;  one  pound  of  sugar  for 
two  pounds  of  rice  ;  three  pounds  of  rice  for  one  pound  of 
tobacco.  At  what  rate,  then,  shall  he  exchange  his  tacks 
for  sugar?  The  problem  here  is  a  very  easy  one,  almost  too 
easy  to  occur  in  practice,  since  the  commodities  we  have 
taken  are  very  few,  and  the  numbers  are  all  factors  of 
twent3^-four.  Let  us  work  it  out.  If  one  pound  of  tobacco 
is  worth  four  pounds  of  flour,  and  a  pound  of  tacks  is  worth 
two  pounds  of  flour,  tacks  are  worth  half  tobacco,  by  weight. 
If  one  pound  of  sugar  is  worth  two  pounds  of  rice,  and  a 
pound  of  tobacco  is  worth  three  pounds  of  rice,  sugar  is 
worth  two-thirds  tobacco,  by  weiglit.  If,  then,  tacks  are 
worth  half  tobacco,  and  sugar  is  Avorth  two-thirds  tobacco, 
tacks  are  worth  three-fourths  sugar,  by  weight ;  tliat  is  four 
pounds  of  tacks  should  buy  three  pounds  of  sugar.f 

90.  Wanted  :  A  Medium  of  Exchange. — Such  are  the  ob- 
stacles to  direct  exchange,  or  barter.  The  sense  of  these 
difficulties  early  drove  the  world  to  the  mean«  of  avoiding 
direct  exchange.     This  was   effected   by  the  use  of  some 

*  Using  figures  to  represent  different  articles,  such  as  wheat,  cot- 
ton, wool,  iron,  sug-^r,  tobacco,  coll'ee,  etc.,  the  teacher  might  here 
place  upon  the  blackboard  tables  which  should  show  the  dilliculty 
of  quoting  each  article  in  the  market  in  terms  of  every  other. 

f  In  the  illustration  given  above,  it  is  assumed  that  tacks  are  woith 
6  ceuts  ;  sugar,  8  ;  tobacco,  12  ;  tlour,  3  ;  rice.  4. 


^^  POLITICAL  ECONOMY. 

article,  which,  either  by  law  or  by  general  agreement,  all 
producers  should  receive  for  anything  which  they  had  to 
sell,  being  made  willing  to  do  so  by  the  assurance  that  all 
other  producers  would  receive  this  article  from  them,  when- 
ever they,  in  turn,  wished  to  buy.  Any  article,  so  used  in 
any  community,  becomes  the  general  medium,  or  means, 
of  exchange  ;  and  to  it  the  people  of  our  race  apply  the 
name,  money. 

Now,  let  us  see  how  this  instrument,  or  means,  or  me- 
dium, of  exchange  works  in  practice.  Let  it  be  supposed 
that,  in  a  given  community,  wheat  has  come  to  be  so  gen- 
erally used  as  money  that  every  producer  knows  and  feels 
perfectly  assured  that,  with  wheat,  he  can  buy,  at  any  time, 
in  any  place,  from  any  person,  whatever  he  may  desire  to 
consume.  This  being  so,  he  will  himself  prefer  to  sell  his 
own  product  for  wheat  rather  than  for  anything  else.  In 
such  a  state  of  things,  the  problem  of  exchange  becomes  a 
very  simple  one.  A  producer  has  no  longer  to  find  out  for 
how  much  of  this  or  that,  among  twenty  or  fifty  or  a  hun- 
dred articles,  a  certain  amount  of  his  own  kind  of  goods  is 
selling  for.  He  has  only  to  find  out  how  much  wheat  that 
kind  of  goods  is  selling  for  ;  and  this  he  can  readily  do  by 
a  single  inquiry.  Having  ascertahied  this,  he  is  no  longer 
obliged  to  find  the  men  who  want  the  goods  he  has  and  also 
have  the  particular  goods  he  wants  ;  but  the  moment  he 
finds  a  man  who  wants  his  goods  and  also  has  wheat  (and 
every  one  who  has  any  wealth  at  all  now  keeps  wheat  on 
hand,  for  this  purpose)  lie  can  close  the  bargain  at  once. 
Finally,  the  great  difficulty  about  "  making  change"  is 
avoided.  If  it  is  an  ox  he  has  to  sell,  he  gets  for  it,  say,  a 
wagon-load  of  wheat ;  and  of  this  he  gives  half  a  peck  for  a 
pound  of  sugar,  a  bushel  for  a  keg  of  nails,  two  bushels  for 
a  hat,  four  bushels  for  a  gun,  six  bushels  for  a  roll  of  cloth, 
and  so  on,  to  the  extent  of  his  wants  and  his  means.     No 


POLITICAL  ECONOMY.  99 

matter  how  small  the  value  of  the  thing  he  wishes  to  buy, 
he  can  always  take  out  a  quantity  of  wheat  which  will  be  of 
about  the  same  value. 

91.  The  Money  Function. — Let  us  now  recapitulate  the 
ways  in  which  money  performs  its  great  office  as  a  medium 
of  exchange. 

First,  it  dispenses  with  the  double  coincidence  of  wants 
and  possessions,  which  is  involved  in  barter. 

Second,  it  promotes  the  making  of  change,  as  between 
articles  which  cannot  themselves  be  divided  without  de- 
stroying or  imj^airing  their  value. 

Third,  it  furnishes  a  '*  price  current"  of  all  the  articles 
in  the  market,  through  giving  a  common  denominator  for 
the  value  of  each  and  every  article,  by  turns. 

92.  Definition  of  Money. — Having  described  the  money 
function,  we  are  now  able  to  define  money.  In  other 
words,  having  seen  what  money  does,  we  can  tell  what 
money  is.  Everything  which  does  the  work  which  has  been 
indicated  above,  is  money,  no  matter  what  it  is  made  of,  no 
matter  what  its  size,  weight,  shape  or  color.  To  parody  an 
old  proverb,*  money  is  that  money  does.  The  following 
is  our  formal  definition  of  money.  Like  our  definition  of 
value  (par.  3)  it  is  necessarily  long  and  much  involved  ; 
but  nothing  less  than  this  will  convey  the  whole  truth,  so 
that  it  cannot  be  misunderstood. 

Money  is  that  ivhich  passes  freely  from  hand  to  hand 
throughout  the  comnninity,  in  final  discharge  of  debts  and 
full  payment  for  commodities,  being  accepted  equally  with- 
out reference  to  the  character  [or  credit)  of  the  person  who 
offers  it,  and  without  any  intention  on  the  2Xirt  of  the  re- 
ceiver to  consume  it,  or  enjoy  it,  or  appily  it  to  any  other 
use  than,  in  turn,  to  tender  it  to  others,  in  discharge  of  debts 
or  in  payment  for  commodities. 

*  "Handsome  is  that  haadsonie  doefi." 


100  POLITICAL  ECONOMY. 

93.  An  Historical  Illustration. — Let  us  take  an  illustra- 
tion from  tlie  history  of  Virginia.  Tobacco  early  became 
the  chief  export  of  that  colony.  Since  tobacco  was  always 
in  demand  for  shipment,  it  was  readily  taken  at  the  conn- 
try  store.  Every  planter  brought  his  tobacco  thither, 
knowing  that  it  wonld  be  taken,  as  a  matter  of  course. 
Every  week,  or  every  month,  the  trader  loaded  up  his  teams 
and  sent  his  stock  of  tobacco  to  the  sea-shore,  where,  in 
the  chief  towns,  it  was  exchanged  for  West  India  goods, 
dry  goods,  hardware,  etc.,  imported  from  abroad.  With 
these  the  teams  returned  loaded  ;  and  the  planters  took  the 
molasses,  the  cloth,  the  boots  or  the  tools  they  wanted,  to 
the  value  of  the  tobacco  which  the  trader  had  received 
from  them. 

Even  such  an  extensive  use  of  tobacco,  in  exchange,  did 
not,  however,  make  it  money.  The  transactions  which 
have  been  described  were  merely  instances  of  barter.  But 
the  fact  that  tobacco  was  thus  freely  taken  at  the  country 
store  soon  gave  an  extension  to  its  use  in  exchange  which 
did  make  it  money.  Since  tobacco  was  taken  at  the  store, 
in  exchange  for  goods  of  every  kind,  it  came  to  be  taken 
between  man  and  man,  throughout  the  community.  The 
lawyer  and  the  physician  were  glad  to  receive  their  pay  in 
tobacco,  because  this  was  always  good  for  groceries  and  dry 
goods;  while  the  fact  that  tobacco  was  taken,  not  only  by 
the  store-keeper,  but  also  by  the  lawyer  and  the  physician, 
made  the  farmer  who  raised  corn  willing  to  take  it  in  ex- 
change for  his  product. 

And,  so,  tobacco  became  money  in  Virginia.  It  was  not, 
however,  until  every  one  took  it,  and  took  it  as  a  matter  of 
course,  that  it  was  properly  to  be  called  money.  So  long 
as  men  accepted  it  with  any  degree  of  uncertainty  as  to 
finding  persons  who  would  in  turn  accept  it  from  them;  so 
long  as  men  took  it  with  the  feeling  that  it  was  something 


POLITICAL  ECONOMY.  101 

which  the}^  were  biTving,  and  which  they  would  have  to 
sell  over  again,  something  for  which  they  must  needs  hunt 
up  a  purcliaser.  tobacco  was  not  money. 

94.  Universal  Acceptability  Essential  to  Money, — No 
article  becomes  money  until  it  has  acceptance  so  nearly  uni- 
versal that  jjractically  every  person  who  has  any  service  or 
product  to  dispose  of,  will  freely,  gladly  take  it,  in  prefer- 
ence to  seeking,  at  the  time,  the  specific  products  or  ser- 
vices which  he  may  require  fi-om  others.  He  takes  it  from 
any  man,  whenever  he  has  anything  to  sell,  because  he 
knows  that  any  other  man  will  take  it  from  him,  whenever 
he  may  wish,  in  his  turn,  to  buy.  When  an  article 
reaches  this  degree  of  acceptability,  it  becomes  money,  no 
matter  what  it  is  made  of,  and  no  matter  why  people  want  it. 
If,  as  a  matter  of  fact,  people  do  want  it,  that  suffices  for 
all  the  purposes  of  a  true  money. 

The  reader  should  fix  his  mind  strongly  on  this  central 
idea  of  a  Medium  of  Exchange.  Money  is  always  a  me- 
dium ;  an  intermediate  thing ;  not  an  end,  but  a  means 
to  an  end.  Men  take  it,  not  for  its  own  sake,  but  for 
what  it  will  bring  them.  They  hold  it,  not  to  enjoy  it, 
but  to  be  ready  for  the  moment  when  they  shall  part 
with  it,  in  purchasing  those  things  which  they  desire  to 
enjoy. 

95.  Price. — We  have  thus  far,  in  this  treatise,  spoken 
much  of  Value,  and  shall  continue  to  do  so;  but  the  time 
has  now  come  to  introduce  a  new  term,  viz.,  Price.  Value 
is  power  in  exchange  :  price  is  power  in  exchange  for 
money.  The  price  of  an  article  is  its  money-value.  The 
value  of  a  horse,  for  example,  represents  the  power  which 
the  horse  confers  upon  its  owner  to  command,  in  exchange 
for  itself,  the  labor  of  other  persons,  or  many  and  various 
products,  at  will,  corn,  cotton,  iron,  or  what  not.  The 
price  of  a  horse  represents  the  power  which  the  horse  eon- 


102  POLITICAL  ECONOMY. 

fers  upon  its  owner  to  command,  in  exchange  for  itself,  the 
money  of  the  country. 

Price  is,  tlius,  value  in  terms  of  money.  Now,  value,  as 
we  saw,  depends  always  upon  the  relations  of  demand  and 
supply.  Price,  therefore,  being  a  species  of  value,  must 
depend  always  upon  the  relations  of  demand  and  supply. 
Increase  the  quantity  of  money  in  the  country,  the  number 
of  horses  and  the  demand  for  horses  remaining  the  same, 
and  the  price  of  horses  will  rise :  that  is,  it  will  require 
more  money,  more  coins,  say,  of  gold  or  silver,  to  purchase 
a  liorse.  Increase  the  number  of  horses,  the  demand  for 
horses  remaining  the  same,  and  the  amount  of  money  being 
unchanged,  the  price  of  horses  will  fall :  that  is,  fewer  coins 
of  gold  or  silver  will  purchase  a  liorse. 


CHAPTER  XII. 
PRIMITIVE  FORMS  OF  MONEY. 

96.  The  Cereals  as  Money. — We  liaye  told  what  money 
does,  and  what  money  is ;  and  we  have,  in  illustration, 
spoken  of  one  article,  tobacco,  which  has  actually  served  as 
money,  through  a  considerable  time  and  over  a  considerable 
extent  of  territory.  Let  us  now  consider  other  historical 
forms  of  money. 

Wheat,  corn,  and  rye  have  extensively  performed  this 
office.  It  is  manifest  that  tlie  cereals  have  two  important 
qualifications  for  use  as  money. 

First,  they  are  in  universal  request,  for  jjersonal  consump- 
tion as  food. 

Second,  the  value  of  a  day's  labor,  in  cereals,  comprises 
many  separate  grains.  Consequently,  you  can  take  out  of 
such  a  mass  of  wheat,  or  corn,  or  rye,  the  price  of  the  small- 
est and  cheapest  article.  There  is  no  difficulty  in  making 
change  with  this  kind  of  money. 

On  the  other  hand,  the  cereals,  as  money,  are  subject  to 
two  drawbacks:  first,  in  the  great  weight  and  bulk  of  the 
quantity  which  represents  a  day's  labor  ;  and,  secondly,  in 
their  liability  to  injury,  through  rust,  insects,  damp,  ovei«- 
heating,  or  from  tlie  mere  passage  of  time. 

97.  Cattle  and  Sheep  as  Money. — Cattle  have  also  exten- 
sively  performed  this   office.     Oxen  were  used  as  money 

103 


104  POLITICAL  ECONOMY. 

among  the  Greeks  of  the  Homeric  period.  Sheep  served 
the  Italians,  at  a  later  period,  as  the  common  medium  of 
exchange.  Even  after  the  abandonment  of  Britain  by  the 
Eomans,  we  find  the  inhabitants,  in  the  scarcity  of  coin, 
returning  to  the  use  of  '•'living  money,"  especially  in  Scot- 
land and  Wales.  "It  is  very  possible,"  says  Sir  Henry 
Maine,  "that  kine  were  first  exclusively  valued  for  their 
flesh  and  milk;  but  it  is  clear  that  in  very  early  times  a  dis- 
tinct and  special  importance  belonged  to  them  as  the  in- 
strument or  medium  of  exchange." 

Cattle  or  shee])  may  be  either  a  good  money  or  an  incon- 
venient money,  according  to  the  circumstances  of  the  com- 
munity. In  a  pastoral  state,  they  present  many  advantages 
for  this  use.  They  carry  themselves  ;  and  thus  avoid  the 
principal  objection  to  the  use  of  grain  as  money.  On  all 
sides  are  fields  and  plains,  over  which  the  animals  may 
graze  ;  while  every  member  of  the  society  is  familiar  with 
the  methods  of  guarding  and  tending  them. 

On  the  other  hand,  cattle  and  sheep  have  two  serious 
drawbacks  to  such  use.  The  first  is  that  each  animal  has 
too  high  a  value  to  be  used  for  single,  daily  purchases. 
Even  the  calves  and  lambs  will  scarcely  answer  all  the  re- 
quirements of  small  change.  The  second  drawback  to  the 
use  of  cattle  and  sheep,  as  money,  is  the  difference  in 
quality  which  exists  among  them.  Even  in  a  picked  herd 
or  flock,  there  is  great  room  for  choice  ;  while  it  is  amazing 
how  small  and  lean  cattle  can  be,  if  they  are  to  be  used  for 
paying  debts  or  taxes.  In  the  early  days  of  the  Massachu- 
setts colony,  citizens  were  allowed  to  pay  their  taxes  in. this 
way ;  and  it  is  related  that  the  cattle  which  came  into  the 
hands  of  the  town  treasurers  were  something  wonderful  to 
behold. 

But  while  cattle  and  sheep  have  been  found  by  many 
tribes  and  peoples,  in  a  pastoral  state,  and  even  when  ad- 


POLITICAL  ECONOMY.  105 

vanced  a  certain  way  in  agriculture,  to  be  tolerably  good 
money,  in  spite  of  these  objections,  it  is  evident  that  the 
very  possibility  of  answering  this  requirement  fails  in  all 
highly  civilized  states.  The  cost  of  feeding  animals,  and 
the  risk  and  trouble  of  keeping  them,  become  so  great  as 
absolutely  to  preclude  their  use  as  money. 

In  addition  to  cereals,  and  to  cattle  and  sheep,  a  great 
variety  of  articles  have,  at  one  time  or  another,  in  one 
country  or  another,  been  used  in  this  way.  Eice  was  so 
used  along  the  Coromandel  shore  ;  cocoa,  among  the  abo- 
riginal ]\[exicans  ;  olive-oil,  by  the  inhabitants  of  the  Ionian 
Islands  ;  blocks  of  rock  salt,  by  the  Abyssinians ;  strings 
of  wampum,  with  bullets  for  small  change,  by  the  early 
New-Englanders  ;  small  cubes  of  compressed  tea  were  used 
as  money  in  the  famous  Russian  fairs  ;  dried  dates  in  the 
African  oases ;  beaver  skins  and  seal  skins,  in  many  coun- 
tries, 

98.  The  Metals  as  Money. — One  large  class  of  substances 
have  a  great  importance  in  the  history  of  money,  having 
been  used  as  the  medium  of  exchange  in  the  earliest  times, 
and  among  a  wide  circle  of  nations.  The  metals,  es- 
pecially seven  of  them,  have  been  found  to  possess  in  a 
very  high  degree  the  material  properties  required  for  this 
purpose. 

Iron,  lead,  tin  or  copper,  one  or  all,  early  became  the 
money  of  almost  every  country  whose  history  we  know. 
The  numerous  uses  of  these  metals  made  them  universally 
acceptable ;  while,  the  art  of  mining  being  in  those  days 
very  rude,  a  small  body  of  metal  represented  tlie  labor  of 
days,  and  thus  contained  a  high  purcliasing  jiower. 

Metal  money  was,  in  certain  respects,  better  tlian  any 
other  form  of  money  known  to  barbarous  communities  : 

{a)  The  metuls,  though  subject  in  some  degree  to  loss 
through  exposure  to  the  air,  suffer  almost  indefinitely  less 


106  POLITICAL  ECONOMY. 

from  fire  or  other  forms  of  accident  than  most  kinds  of 
wealth  that  are  not  metallic. 

{h)  Bodies  of  these  metals  can,  with  comparative  ease,  be 
divided  or  reunited,  as  may  be  required  ;  they  may  be 
melted  down  and  cast  into  any  shape  ;  they  may  be  alloyed 
or  purified,  with  comparatively  little  labor  or  loss  of  sub- 
stance. 

It  is  through  its  failure  in  the  last  respect,  that  still  an- 
other metal,  besides  those  named,  has  not  been  used  as 
money.  This  is  platinum  :  a  noble  metal ;  in  some  respects 
the  best  of  all.  In  1828,  the  Emperor  of  Kussia  under- 
took to  use  platinum  as  a  money  metal,  but,  after  about 
twenty  years,  the  effort  was  abandoned,  owing  to  the  ex- 
treme difficulty  of  reiidering  platinum  from  ingots  into 
coin  and  from  coin  back  again  into  ingots,  as  might  be 
needed. 

As  the  art  of  mining  improved,  iron,  lead,  and  tin,  one 
by  one,  became  too  cheap  to  be  conveniently  used  as  money. 
In  all  other  respects,  the  metals  were  just  as  well  qualified 
for  this  use  as  ever ;  but  the  great  weight  of  the  quantity 
of  any  one  of  them  which  could  be  produced  by  a  day's 
labor,  made  such  coins  in  an  increasing  degree  inconvenient. 
Copper  longest  held  its  own  ;  but  even  this,  after  a  while, 
ceased  to  be  used  as  money  in  highly  civilized  countries, 
except  as  small  change.  Among  barbarous  or  semi-ba:- 
barous  nations,  however,  copper  still  remains  the  chief 
money. 

99.  The  Precious  Metals. — ^Two  of  the  metals  have  en- 
joyed a  preeminence  in  the  history  of  money  which  .has 
earned  for  them  the  proud  title,  the  Precious  Metals. 

Not  that  gold  and  silver  are  the  most  costly  of  all.  Sev- 
eral metals  are  more  valuable  even  than  gold  ;  but  these  are 
found  in  extremely  small  quantities,  far  below  what  would 


POLITICAL  ECONOMY.  107 

be  required  to  furnish  all  the  coius  needed  for  use  in  any 
one  considerable  country. 

Of  the  two  so-called  precious  metals,  silver  first  came  into 
use  as  money.  We  hear  of  it  in  early  Hebrew  history.  It 
was  long  coined  by  the  Greeks  and  Romans,  wliile  gold  re- 
mained merely  treasure  in  palaces  and  temples,  or  was  used 
for  extremely  precious  ornaments.  The  great  Philip  of 
Macedon,  in  the  early  part  of  his  reign,  was  wont,  when  he 
retired  to  rest,  to  place  under  his  pillow  the  small  and  only 
cup  of  gold  he  possessed. 

The  extreme  beauty  of  silver,  brightest  of  all  the  metals, 
together  with  its  many  uses  in  the  economy  of  life,  make  it 
an  object  of  admiration  and  desire  among  all  peoples,  in 
every  stage  of  social  advancement.  Easily  fusible,  highly 
ductile,  practically  imperishable,  silver  would  have  filled 
our  highest  conception  of  a  money  metal,  had  not  the  earth 
yielded  one  transcendent  product,  in  comparison  with  which 
even  silver  fades  from  desire. 

So  gi-eat  is  the  diflSculty  of  obtaining  gold,  that  a  vast 
amount  of  purchasing  power  is  concentrated,  whether  for 
conveyance  or  for  concealment,  in  very  small  bulk.  Hum- 
boldt, in  one  of  his  memoirs,  states  that,  at  then  existing 
prices,  one  kilogram  of  gold  would  purchase  1611  kilo- 
grams of  copper,  9700  of  iron,  20,974  of  wheat,  or  31,717 
of  barley. 

But  while  gold  is  thus  precious,  it  is  found  in  many- 
countries,  and  in  sufficient  quantity  to  allow  of  its  con- 
venient use  as  an  every-day  medium  of  exchange  by  wealthy 
nations,  "Were  gold  as  scarce  as  vanadium,  the  piece  in 
which  a  workman  received  his  day's  wages  would  require  to 
be  handled  with  delicate  pincers,  like  the  parts  of  a  watch, 
and  would  be  liable  to  be  blown  away  and  lost  by  an  unex- 
pected sneeze. 

The  durability  of  gold,  its  fusibility,  ductility  and  mal- 


108  POLITICAL  ECONOMY. 

leability,  form  a  group  of  properties  of  the  highest  im- 
portance for  the  purposes  of  coinage  and  circulation ; 
while  they  add  greatly  to  its  uses  in  the  industrial  and 
decorative  arts.  One  cubic  inch  of  gold  may  be  beaten  out 
to  cover  millions  of  square  inches.  Gold  may  be  alloyed 
and  refined,  united  and  divided  with  the  greatest  ease,  and 
with  absolutely  no  loss  of  the  pure  metal. 


CHAPTEK  XIII. 

CREDIT :    THE    STANDARD  OF  DEFERRED  PAYMENTS  • 
THE  TABULAR  STANDARD  ;  BIMETALLISM. 

100.  The  Growth  of  Credit.— What  we  have  thus  far 
said  concerning  capital  would  be  nearly  all  true,  were 
every  portion  of  capital  in  the  hands  of  its  owner,  to  be 
used  by  him  in  production  or  trade.  And,  indeed,  in  that 
primitive  state  of  industrial  society  of  which  we  have 
spoken  so  much,  capital  generally  remains  in  the  hands  of 
its  proper  owner.  Of  course,  even  here  capital  is  some- 
times loaned  by  its  owners  to  other  persons,  upon  promise 
of  repayment,  at  a  definite  time,  or  upon  demand,  which 
promise  is  generally  supported  by  a  pledge  or  mortgage  of 
lands  or  of  some  form  of  wealth.  Frequently,  the  body 
or  the  personal  liberty  of  the  borrower  is  pledged  for  the 
repayment  of  the  loan,  so  that  if  he  fail  to  pay  at  the 
proper  time,  the  lender,  the  })erson  who  has  given  credit, 
the  creditor,  has  the  right,  under  the  law,  to  seize  his  per- 
son, either  to  make  him  work  as  a  slave,  or  to  shut  him  uj) 
in  prison.  But,  in  such  a  state  of  society,  the  total 
amount  of  capital  is  very  small,  and  of  this  only  a  very 
small  proportion  is  loaned.  The  great  majority  of  those 
who  have  capital  are  botli  desirous  and  able  themselves 
to  employ  it  in  business,  in  the  simple  agriculture,  or  in 
the  small  manufactures,  or  in  the  petty  neighborhood 
trade,  then  carried  on. 

As,  however,  communities  grow  older  and  advance  in  the 

109 


110  POLITICAL  ECONOMY. 

industrial  arts^  the  amount  of  caj^ital  rapidly  increases  ; 
and  of  this  larger  amount  a  continually  larger  share  is  let 
out  to  others  than  the  owners.  The  reason  for  this  last 
fact  is  twofold : 

{a)  There  is  a  continually  increasing  number  of  per- 
sons who  do  not  have  occasion  to  employ  their  own  sav- 
ings in  their  own  business.  Take  the  case  of  a  small 
farmer.  When,  perhaps,  the  grandfather  first  acquired 
the  farm,  he  was  put  to  great  straits  to  find  capital  enough 
to  properly  improve  it.  He  was  obliged  all  his  life  to 
pinch  himself  and  his  family  to  get  the  means  to  pur- 
chase animals  and  tools,  to  build  fences  and  sheds  and 
barns  and  a  poor  sort  of  house.  His  son,  finding  much 
of  this  done,  was  not  obliged  to  live  quite  so  meanly  : 
but  still  he,  too,  continued,  through  his  life,  to  put  all  he 
could  possibly  save  into  various  kinds  of  improvements, 
including  deeper  ditches,  higher  walls,  larger  barns  and, 
perhaps,  a  better  house.  The  grandson,  coming  into  pos- 
session of  a  well-improved  farm,  has  a  much  less  urgent 
need  for  whatever  wealth  he  can  save  out  of  his  earnings  ; 
and,  if  he  does  not  choose  to  enlarge  his  farm,  he  has  every 
year  something  left  over  wliicli  he  can  lend  to  any  one  who 
desires  to  build  a  little  mill  on  a  neighboring  stream,  or  to 
set  up  a  small  shop  or  store  in  the  village.  The  further  the 
division  of  labor  is  carried,  the  larger  will  be  the  number 
of  those  who  have  capital  to  lend. 

{h)  There  is  another  cause  which  works  to  the  same  end. 
The  larger  the  operations  of  business  and  the  more  com- 
plicated the  organization  of  industry,  the  smaller,  relatively, 
becomes  the  number  of  those  who  can  safely  and  success- 
fully undertake  production  and  trade.  Very  many  who 
have  capital,  in  large  amounts  or  in  small,  fear  that,  should 
tliey  undertake  to  use  it  in  business  for  themselves,  they 
would  lose  it  in  part  or  in  whole,  and  hence  they  prefer  to 


POLITICAL  ECONOMt.  Ill 

entrust  it  to  others  whom  they  deem  more  capable,  who 
are  ah-eady  in  business  and  can  use  this  additional  capital 
to  do  more  of  the  same  kind  of  work. 

101.  Modern  Credit. — Tliis  movement,  for  the  loan  of  cap- 
ital, which  we  have  seen  beginning  in  a  very  early  stage  of 
industrial  society,  goes  on  at  a  continually  accelerated  ratio 
until,  in  such  communities  as  those  to  which  we  belong,  a 
very  large  part,  sometimes  by  far  the  lurger  part,  of  all  the 
capital  in  existence  is  in  the  hands  of  those  who  do  not 
own  it,  but  borrow  it  from  the  owners,  upon  various  con- 
ditions and  terms  of  repayment.  While  this  is  going  on, 
the  laws  regarding  the  treatment  of  the  del:)tor,  in  case  he 
should  fail  to  make  payment  according  to  his  contract,  are 
continually  growing  milder.  Those  which  made  the  un- 
fortunate debtor  a  slave  to  his  creditor  are  first  repealed. 
Then  imprisonment  for  debt,  where  no  fraud  is  suspected, 
is  first  mitigated  and  finally  abolished.  At  last,  so-called 
bankruptcy  laws  are  passed,  so  that  a  man  who  has  bor- 
rowed money  which  he  cannot  repay,  and  who  can  satisfy 
the  judge  that  he  has  done  his  best,  in  good  faith,  has  his 
debt  wiped  out,  and  is  permitted  to  begin  his  work  in  life 
over  again. 

These  gradual  changes  in  the  law  relating  to  debt  are 
not  due  wholly  to  a  better  sense  of  justice  or  to  greater  hu- 
manity. They  are  largely  due  to  policy,  for,  if  jj  rod  notion 
and  trade  are  to  be  greatly,  and  even  mainly,  carried  on 
with  borrowed  capital,  as  is  absolutely  necessary  in  such  a 
state  of  society,  then  the  borrowing  of  cajiital  must  be 
made  easy  and  safe,  and  the  old,  cruel  laws  must  be 
abolished. 

102.  The  Creditor  Class. — I  have  shown  how,  in  an  early 
stage  of  society,  the  cultivator  of  a  well-improved  farm 
may  have  capital  to  lend  to  the  man  who  wishes  to  set  up 
a  mill  or  a  shop.     In  a  long-settled  country,  like  England, 


112  POLITICAL  ECONOMY. 

the  amount  so  loaned  by  the  agricultural  interest,  for 
building  up  manufactures  and  extending  trade,  becomes 
enormous.  Then,  as  one  branch  of  manufactures  becomes 
rich  and  strong,  it  is  able  to  loan  capital  to  those  who  are 
starting  new  branches  of  manufacture.  Moreover,  the  pro- 
fessional classes,  so  called,  become  lenders  to  a  large  amount. 
A  lawyer  or  physician,  who  has  accumulated  twenty  or  fifty 
thousand  dollars,  in  the  course  of  his  practice,  has  no  occa- 
sion to  use  his  capital  in  his  own  business  ;  and  is  there- 
fore glad  to  lend  it,  upon  good  security,  to  some  one  who 
will  employ  it  in  business  and  give  him  a  part  of  the  profits. 
Even  the  laboring  classes  become  lenders;  and,  though  the 
amount  that  each  has  to  loan  is  small,  the  aggregate  amount 
which  hundreds  of  thousands,  or  millions,  of  laborers  may 
have  to  loan,  if  they  are  both  industrious  and  frugal,  is 
very  great.  Finally,  there  is  an  increasing  number  of  those 
who,  having  inherited  money  from  their  fathers  or  others, 
are  not  disposed  to  employ  it  productively  themselves,  but, 
either  through  fear  of  losing  their  capital  or  from  a  desire 
to  take  life  easily,  prefer  to  have  others  manage  it  for  them. 
This  is  one  of  those  things  of  which  we  say  that  tliey  ac- 
quire force  by  their  own  motion.  The  further  the  "  credit 
system"  is  carried,  the  greater  the  inducements  to  lend 
cajntal  to  persons  who  have  peculiar  opportunities  for  em- 
j)loying  it  advantageousl}^,  until  it  may  come  about,  in  any 
country,  that  but  a  small  part  of  those  who  have  capital 
use  it  in  business  for  themselves. 

The  Standard  of  Deferred  Patmexts. 

103.  Money  as  the  Standard  of  Deferred  Payments. — The 
introduction  of  credit  into  trade  and  industry  makes  a  new 
demand  upon  mone}-,  viz.,  that  it  shall  act  as  the  standard 
of  deferred  payments.     If  a  man  parts  with  the  good  she 


POLITICAL  ECONOMY.  lVt> 

has  produced,  upon  the  condition  that  he  is  only  to  be  paid 
for  them  at  the  end  of  some  montlis,  or  if  the  owner  of 
capital  lends  it  to  another  to  be  repaid,  perhaps,  years 
after,  it  is  evident  that  a  good  money  must  be  something 
more  than  a  convenient  medium  of  exchange.  It  must 
also  possess  a  reasonable  degree  of  stability  in  value,  so  that 
the  creditor  may  receive  back,  at  the  time  of  repayment, 
that  which  shall  be  worth  as  nearlp  as  possible  what  he 
parted  with. 

104.  Wheat  as  the  Standard  of  Deferred  Payments. — The 
articles  which  have  been  historically  used  as  money  differ 
very  widely  in  this  last  respect.  Some,  which  have  been 
excellent  mediums  of  exchange,  have  proved  to  be  very 
poor  standards  for  deferred  payments.  Wheat,  as  we  have 
seen,  has  been  used  as  money  in  many  ages  and  in  many 
countries,  and  has  served  the  purposes  of  a  medium  of  ex- 
change tolerably  well.  As  a  standard  for  payments  de- 
ferred for  a  few  years,  however,  wheat  may  act  very  badly. 
It  may  happen  that  the  crop  of  one  year  will  be  only  three- 
quarters  or  two-thirds  of  that  of  the  year  preceding;  and, 
wheat  being  something  which  everybody  wants,  and  wants 
very  much,  its  value  may,  in  consequence  of  such  scarcity, 
rise  to  double  what  it  was.  In  such  a  case,  the  man  who 
has  loaned  capital,  in  the  form  of  wheat,  will,  on  being 
paid  back  in  wheat,  during  a  year  of  scarcity,  receive  back 
double  what  he  lent.  This  is  a  great  wrong  to  the  debtor, 
and  may  ruin  him  entirely;  while  the  creditor,  though  he 
receives  much  more  than  his  due,  will  derive  therefrom  no 
corresponding  benefit.  All  history  teaches  that  unearned 
gains  do  not  Jieljj  7nenas  much  as  undeserved  losses  hurt 
7nen.  Light  come:  light  go.  Industry  and  frugality, 
hopefulness  and  cheerfulness  in  labor,  the  feeling  of  Justice 
between  man  and  man,  the  willingness  to  loan  ca2)ital  to 
others,  all  these   are   seriously  impaired  and   sometimes 


114  POLITICAL  ECONOMY. 

fatally  injured  by  such  unearned  gains  to  one  party,  such 
undeserved  losses  to  the  other. 

105.  Gold  and  Silver  as  the  Standard  of  Deferred  Pay- 
ments.— On  the  other  hand,  the  metals  have  a  considerable 
stability  of  value,  within  a  short  term  of  years.  Especially 
is  this  true  of  gold  and  silver.'  Being  practically  imperish- 
able, and  being  mainly  used  as  money,  any  one  year's  pro- 
duction, or  any  two  or  five  years'  production,  bears  a  very 
small  proportion  to  the  total  stock  in  existence.  If  we 
suppose  the  total  amount  of  gold  and  silver  in  the  hands 
of  men  to  be  ten  thousand  millions  of  dollars  (American 
money),  and  the  annual  average  production  to  be  a  hun- 
dred millions,  it  will  be  seen  that,  should  the  annual  pro- 
duction fall  off  to  fifty  millions,  for  one  year,  or  three,  or 
five,  the  value  of  the  precious  metals  would  be  very  little 
affected  thereby.  In  the  same  way,  should  the  annual  pro- 
duction rise  to  one  hundred  and  fifty  millions,  for  the 
same  time,  the  value  of  silver  and  gold  would  not  be  much 
reduced,  in  consequence. 

But,  while  gold  and  silver  have  thus  a  high  degree  of 
stability  of  value,  as  compared  with  wheat,  within  a  brief 
term  of  years,  they  tend  to  change  much  more  than  wheat 
during  long  periods,  such  as  fifty  or  one  hundred  years. 
While  one  crop  of  wheat  may  be  large,  or  may  be  small,  as 
compared,  with  another,  and  while  we  may  even  have  two 
or  three  bad  years,  followed  by  as  many  good  years,  the 
cost  of  producing  wheat  does  not  vary  greatly  from  age  to 
age.  On  the  other  hand,  after  fifty  years  of  a  rapid  pro- 
duction of  gold  and  silver,  the  principal  mines  supplying 
the  market  may  be  found  almost  completely  worked  out ; 
and  a  long  period  may  ensue,  during  which  the  value  of 
gold  and  silver  may  steadily  rise,  before  new  mines  or  new 
mining  countries  shall  be  discovered,  perhaps  ages  after. 
This  has  been  the  experience  of  the  world  many  times  in 


POLITICAL  ECONOMY.  115 

human  history.  Unfortunate  as  this  condition  is,  nothing 
has  yet  been  hit  upon  to  remedy  the  evils  resulting.  The 
spasmodic  and  intermittent  production  of  the  precious 
metals  has  always  constituted  a  grave  obstacle  to  industrial 
and  social  progress,  although  it  was  not  until  recently  that 
the  effects  of  this  cause  were  clearly  perceived  and  fully 
appreciated  by  historians  and  statesmen. 

A  Tabular  Standard. 

106.  A    Tabular  Standard  for  Deferred  Payments. — A 

strong  sense  of  the  inconvenience  and  the  injustice  result- 
ing from  the  use  of  any  single  article,  as  money,  has  led 
certain  economists  to  propose  the  introduction  of  a  stand- 
ard for  deferred  payments  which  shall  be  different  from 
the  money  used  in  buying  and  selling  where  payment  is  to 
be  made  at  the  time.  The  standard  they  propose  is  to  be 
formed,  not  of  any  one  article,  but  of  several,  even  of 
many,  articles,  joined  together  for  this  purpose.  The  idea 
underlying  the  plan  is  that,  if  a  number  of  articles  be 
taken,  some  will  rise,  to  be  sure,  but  others  will  fall;  and 
that,  if  enough  articles  be  selected,  nearly  as  many  will 
rise  as  will  fall,  and  thus  the  average  value  of  the  whole 
will  not  greatly  change. 

Those  who  thus  propose  what  is  called  a  tabular  stand- 
ard of  value,  i.e.,  a  standard  made  up  from  a  table,  or  list, 
of  many  different  things,  do  not  intend  that  money  shall- 
be  dispensed  with,  in  ordinary  buying  or  selling;  or  even 
that  money  shall  bo  dispensed  with  in  making  deferred 
payments.  The  tabular  standard  is  only  to  be  used  to  de- 
termine lioio  much  monai)  shall  be  i:)aid,  at  the  end  of  a 
period  of  credit. 

Let  us  illustrate  the  working  of  such  a  system.  A  sells 
a  house  to  B  for  $5000.  B  is  to  pay  for  the  house  at  the 
end  of  three  years.     Now,  with  the  use  of  money,  it  is 


116  POLITICAL  ECONOMY. 

probable  that  B,  at  the  end  of  three  years,  will  pay  to  A 
what  will  be  worth  either  more  or  less  than  what  $5000 
would  have  bought  at  the  time  of  the  sale.  It  may  be  con- . 
siderably  less;  it  may  be  considerably  more.  The  least 
likely  supposition  will  be  that  the  15000  will  then  be  worth 
just  what  they  are  now.  Either  A  or  B  is  almost  certain 
to  lose  something,  without  any  fault  of  his,  which  the  other 
will  gain,  without  having  done  anything  to  deserve  it. 

But  let  us  suppose  that  Government  had,  according  to 
this  scheme,  established  a  tabular  standard  of  value.  This 
could  have  been  done  by  a  law,  wliich  should  declare  tliat 
certain  quantities  of  coal,  of  cotton,  of  iron,  of  wool  and 
of  other  articles,  twenty  or  thirty  in  number,  should  con- 
stitute *' the  standard  of  deferred  payments;"  and  that  cer- 
tain government  officers  should  every  day  publish  in  the 
newspapers  the  cost  of  such  a  bill  of  goods,  according  to 
the  prices  of  the  day  before.  Now  let  us  suppose,  that,  on 
the  day  when  A  sold  the  house  to  B,  the  value  of  the 
tabular  standard  was  125 :  that  is  to  say,  |25  would,  the  day 
before,  have  bought  all  those  goods,  in  the  quantities  fixed 
by  the  law.  A  and  B,  therefore,  covenant  that  B  sliall, 
at  the  end  of  the  three  years,  pay,  not  $5000,  but  (200  X 
$25  =  $5000)  200  units  of  the  tabular  standard.  At  the 
end  of  the  term  of  credit,  three  years,  A  and  B  find  that 
the  value  of  the  tabular  standard,  as  proclaimed  by  the 
commissioners,  is  only  $20;  and  B,  therefore,  pays  to  A 
$-4000,  in  money.  Now,  it  is  true  that  A  has  received 
only  $4000,  instead  of  $5000  which  the  house  was  worth  at 
the  time  of  the  sale;  but,  with  the  $4000  he  thus  receives, 
A  can  go  into  the  market,  and  buy  just  as  many  goods  as 
he  could  have  done,  with  the  price  of  the  house,  three 
years  before.  B  is  thus  saved  from  losing  $1000.  Credit 
has  been  given  and  taken,  without  either  party  gaining  or 


POLITICAL  ECONOMY.  117 

losing  tlirougli  the  change  in  the  value  of  money  in  the 
mean  time. 

That  the  use  of  a  tabular  standard  would  prevent  a  great 
deal  of  injustice  and  industrial  injury  cannot  be  questioned. 
It  is,  however,  a  serious  question,  whether  people  will  ever 
take  the  trouble  to  establish  this  system  and  maintain  it. 
That  trouble  would  not  be  very  great;  but  most  people  are 
averse  to  taking  the  least  trouble  in  the  matter  of  buying 
and  selling.  So  far,  mankind  have  put  up  with  all  the 
evils  attendant  upon  the  use  of  money,  which  rises  and 
falls  in  value  from  time  to  time.  It  is  probable  that  they 
will  continue  to  do  so,  although  the  scheme  we  have  stated 
is  perfectly  practicable,  should  people  care  enough  about 
it  to  take  a  little  pains  for  the  sake  of  the  good  it  would  do. 

Bl-METALLISM. 

107.  Fluctuations  in  the  Relative  Value  of  Gold  and 
Silver. — Keference  has  been  made,  in  the  last  few  para- 
graphs, to  the  fact  that  the  production  of  the  precious 
metals  has,  through  long  periods  of  time,  been  highly 
sj)asmodic  and  intermittent,  vast  amounts  of  these  metals 
being  produced  in  one  period,  Avhile,  in  another,  produc- 
tion has  greatly  fallen  off.  While  this  is  true  of  the  two 
metals  taken  together,  it  is  true  in  a  much  higher  degree 
when  either  metal  is  taken  alone.  At  times,  silver  has 
been  produced  in  large  quantities,  while  the  production  of 
gold  has  almost  ceased.  Then,  again,  the  production  of 
gold  would  spring  up  rapidly,  Avhile  tlie  amount  of  silver 
taken  from  the  mines  fell  off.  It  has  seldom  happened 
tliat  periods  of  great  gold-production  have  coincided  with 
periods  of  great  silver-production. 

Looking  at  this  fact,  many  economists  and  statesmen 
have  thought  that,  if  gold  and  silver  could  somehow  be 
joined  together,  in  their  use  as  money,  there  would  be  far 


118  POLITICAL  ECONOMY. 

less  tendency  to  a  violent  rise  or  full  in  the  value  of  the 
compound  mass,  than  in  either,  taken  alone.  One  method, 
which  has  heen  proposed  for  effecting  this  object,  has  been 
to  make  each  coin  contain  a  certain  amount  of  gold  and  a 
certain  amount  of  silver,  so  that  every  person  who  uses 
coins  should  have  to  use  both  gold  and  silver.  A  scheme, 
more  highly  thought  of,  and  one  which  has  actually  been 
put  in  operation,  by  many  governments,  at  different  times, 
is  that  to  which  the  name,  Bi-metallism,  is  usually 
applied. 

108.  French  Bi-metallism. — We  shall  perhaps  get  the 
best  idea  of  what  might  possibly  be  done  in  this  way,  by 
referring  to  the  law  which  was  enacted  m  France,  in 
1803.  At  that  time,  the  value  of  gold  was  assumed  to 
be  15^  times  that  of  silver.  The  law  of  1803  decreed 
that  every  debtor  should  have  the  right  to  pay  his 
obligations  in  coins  containing  the  stipulated  amount  of 
gold,  or  in  coins  containing  15|-  times  that  amount  of 
silver,  at  his  own  choice.  The  idea  underlying  this  hiw 
was  that,  should  gold  thereafter  tend  to  become  more 
than  Ib^  times  as  valuable  as  silver,  all  debtors  would 
naturally  prefer  to  pay  their  debts  in  coins  of  silver,  the 
chea]3er  metal.  This  would  make  silver  more  sought  for : 
i.e.,  it  would  increase  the  demand  for  silver.  Now,  to 
increase  the  demand  for  an  article,  other  things  equal,  is 
to  raise  its  price.  Thus,  a  force  would  be  set  at  work  to 
counteract  the  force  which  was  tending  to  lower  the  value 
of  silver,  as  compared  with  gold.  On  the  other  hand, 
since  no  debtor  desired  coins  of  gold,  the  demand  for  this 
metal  would  at  once  be  reduced.  Now,  to  reduce  the 
demand  for  any  article  is,  other  things  being  equal,  to 
lower  its  price ;  and  thus,  in  the  instance  given,  a  force 
would  be  set  at  work  to  counteract  the  force  tending  to 
raise  the  price  of  gold,  as  compared  with  silver. 


POLITICAL  ECONOMY.  119 

In  the  opposite  case,  that  is,  sliould  silver  become  more 
scarce,  and  hence  tend  to  rise  in  comparison  with  gold,  the 
same  principle  would  apply;  but  the  forces  would  work  in 
an  exactly  opposite  direction.  Since  every  debtor  Avonld 
seek  to  pay  his  obligations  in  coins  of  the  cheaper  metal, 
i.e.,  gold,  the  demand  for  this  metal  would,  by  that  fact, 
be  enhanced,  while  the  demand  for  silver,  to  pay  debts 
with,  would  fall  off.  Thus,  again,  forces  would  be  set  at 
work  to  counteract  those  which  were  tending  to  make  15| 
uunces  of  silver  worth  more  than  an  ounce  of  gold. 

109.  The  Latin  Union. — Such  was  the  French  scheme. 
At  dates  subsequent  to  1803,  other  countries,  viz.,  Italy, 
Belgium,  and  Switzerland,  joined  with  France  in  this 
measure,  forming  the  league  known  as  the  Latin  Union. 
The  operation  of  the  French  law  proved  extraordinarily 
favorable  to  the  stability  of  "  the  ratio"  between  the  two 
metals,  viz.  15 1-  to  1,  fixed  in  1803.  Shortly  after  that 
date,  occurred  a  series  of  fierce  revolts  and  revolutions 
in  the  Spanish  states  of  South  America,  then  the  prin- 
cipal seat  of  silver  mining;  mining  machinery  was  de- 
stroyed; mining  populations  were  scattered;  the  mines 
themselves  filled  up  or  fell  in.  There  was,  thus,  a  very 
strong  tendency  to  raise  the  price  of  silver,  relatively  to 
gold.  But  the  force  which  the  French  law  had  set  in 
ojDcration  was  found  sufficient  to  counteract  tiiis  cause. 
About  1830,  important  gold  mines  were  discovered  in 
Knssia,  and  again  the  two  metals  tended  to  fall  apart  from 
the  fixed  ratio;  but  again  the  operation  of  the  French 
law  served  to  keep  gold  and  silver  close  to  the  established 
ratio,  not  only  in  France,  but  all  over  Europe  and  in 
America,  as  well.  In  1848,  gold  mines  of  extraordinary 
richness  Avere  discovered  in  California,  and,  only  tliree 
years  later,  in  Australia,  also.  Then  came  the  great  strain 
on  the  bi-metallic  system. 


120  POLITICAL  ECONOMY. 

It  really  seemed  as  though  the  force  which  the  French 
law  brought  into  operation  could  not  possibly  counteract 
the  force  with  which  the  floods  of  new  gold  were  seeking 
to  tear  the  two  money-metals  apart  from  each  other. 
Within  twelve  or  fifteen  years,  as  much  gold  was  produced 
in  California  and  Australia  as  had  existed  in  1848  through 
all  the  world.  The  wisest  and  bravest  of  the  French 
statesmen  and  financiers  were  alarmed.  Apparently,  noth- 
ing could  prevent  gold  from  falling,  under  the  enormous 
increase  of  supply,  until  it  should  be  worth  only  ten,  or 
even  only  seven,  times  as  much  as  silver.  But  France, 
although  everything  seemed  so  black  and  threatening, 
held  firmly  on  to  the  principle  of  the  law  of  1803;  and 
sure  enough,  the  storm  passed  over,  and  the  bi-metallic 
system  was  not  uprooted.  Although  the  ablest  financiers 
had  predicted  that  gold  w^ould  fall  fifty  per  cent.,  it,  in 
fact,  fell  only  one  or  two  per  cent.,  and  very  soon  recovered 
from  even  that  loss. 

It  would  be  too  long  a  story  to  tell,  here,  how  France,  in 
1873,  suspended,  although  she  did  not  repeal,  the  law  of 
1803,  which  had  done  so  much  to  preserve  the  stability  of 
value  between  silver  and  gold.  The  writer  believes  that 
this  measure  was  unnecessary;  and  that,  had  the  statesmen 
of  that  period  possessed  as  much  moral  courage  as  those  of 
1850-57,  the  French  system  would  again  have  weathered 
the  gale,  and  the  world  would  now  be  in  the  enjoyment  of 
all  its  advantages.  Whether  the  Latin  Union,  with  or 
without  the  co-operation  of  other  nations,  like  England, 
Germany,  and  the  United  States,  will  ever  again  put  the 
law  of  1803  in  operation,  is  a  question  which  it  would  be 
idle  to  discuss  here. 

The  reader  should  understand  that  the  subject  of  which 
we  have  been  speaking  is  one  regarding  which  there  is  a 
great  difference  of  opinion  among  economists,  some  hold- 


POLITICAL  ECONOMY.  121 

ing  that  the  bi-metallic  system  can  never  be  made  to  work 
successfully  and  permanently.  Tlie  writei's  who  entertain 
this  opinion  are  entitled  to  great  respect;  but  it  is  per- 
fectly fair  to  say  that  many,  very  many,  who  once  held  this 
view  have,  within  the  past  fe^v  years,  come  over  to  the  side 
of  bi-metallism,  and  tnat  tnis  movement  is  still  in  active 
operation. 


CHAPTER  XIY. 
BANKS  AND  BANK-MONEY. 

110.  The  Origin  of  Banks. — We  have  spoken  of  the 
growth  of  the  credit  system.  We  are  now  to  speak  of  the 
most  important  agency  for  carrying  on  and  extending  that 
system,  viz.,  the  Bank. 

But,  while  the  management  of  credit  is  the  great  and  the 
true  function  of  the  Bank,  banks  have,  in  fact,  had  their 
origin  in  many  different  sources.  In  Italy,  where  the  first 
banks  of  modern  times  appeared,  the  banks  were  finance 
companies,  which  negotiated  loans  for  the  king  or  prince  ; 
but  came  afterwards  to  exercise  the  true  banking  function. 
In  Amsterdam,  in  1609,  a  very  important  bank  was 
formed,  which  had  for  its  principal  purpose  the  melting 
down  and  assaying  of  the  vast  and  varied  mass  of  coins 
from  many  countries,  of  every  degree  of  impurity,*  often 
much  worn  and  clipped,  which  the  trade  of  that  great  com- 
mercial city  brought  into  the  hands  of  its  merchants. 
After  these  coins  had  been  melted  down  and  assayed,  each 
merchant  was  given  credit  on  the  books  of  the  Bank,  to 
the  amount  of  pure  gold,  or  silver,  found  in  the  mass  of 
coins  received  from  him.  These  bank  credits  soon  became 
a  kind  of  money,  merchants  paying  for  goods  by  orders,  or 
checks,  upon  the  Bank.  It  will  be  seen  that  this  Bank 
was  really  a  kind  of  mint.  It  did  a  vast  deal  for  the  trade 
of  Amsterdam,  in  competition  with  commercial  cities  which 

*  That  is,  containing  very  different  proportions  of  "base  metal," 
or  alloy,  such  as  copper  or  lead. 


POLITICAL   ECONOMY.  123 

had  no  such  means  of  ascertaining  the  real  vahie  of  the 
coins  received  by  their  merchants  from  otlier  countries. 

111.  Origin  of  English  Banks. — In  England,  banks  had 
two  different  origins.  The  country  banks  grew  out  of  the 
business  of  the  shop-keepers  and  local  traders.  As  these 
had  occasion  to  send  money  frequently  to  London  and  the 
chief  sea-ports,  in  payment  for  merchandise,  they  got  into 
the  way  of  taking  money  from  the  people  around  them  who 
had  to  pay  debts  or  make  purchases  in  the  city  or  in  the 
coast  towns,  doing  this  either  as  a  favor  or  for  a  small  com- 
mission. Those  traders  who  did  this  work  most  promptly 
and  satisfactorily,  and  in  whom  people  had  the  most  con- 
fidence, finally  became  known  as  bankers,  and  had  this  for 
their  principal  or  their  sole  business,  out  of  which  they 
made  a  profit,  besides  rendering  a  public  service. 

In  London,  on  the  other  hand,  it  was  the  goldsmiths  and 
silversmiths  who  became  bankers.  These,  having  large 
amounts  of  the  precious  metals  always  on  hand,  for  the 
purpose  of  making  "plate"  or  ornaments,  had  their  shops 
strongly  fortified,  with  armed  men  on  guard,  to  beat  off 
robbers.  As  other  people  had  no  such  means  of  security, 
and  as  the  streets  were  ill  lighted,  or  not  lighted,  at  all,  at 
night,  and  as  there  were  few  policemen  in  those  days,  while 
there  were  many  bold  and  ruffianly  persons  abroad,  people 
got  in  the  way  of  leaving  their  money  and  other  valuables 
with  the  goldsmiths,  who  gave  notes,  or  receipts,  for  the 
amounts  deposited.  These  notes,  or  receipts,  were  finally 
made  transferable  by  indorsement.  It  was  in  this  way 
that  Lombard  Street,  on  which  the  London  goldsmiths  had 
their  sliops  in  the  sixteenth  and  seventeenth  centuries,  came 
to  be  the  greatest  banking  strec^t  in  the  world. 

112.  Origin  of  American  Banks. — In  the  United  States, 
again,  banks  had  still  another  origin.  They  were  genei'ally 
first  set  up  as  shops,  or  factories,  for  making  paper-money, 


124  POLITICAL  ECONOMT. 

of  the  kind  which  we  know  as  bank-money.  The  process 
was  as  follows:  A  bank  was  chartered  by  the  State  to  do 
business  in  each  city  or  smart  town:  that  is  to  say,  the  leg- 
islature passed  a  law,  authorizing  certain  persons,  named 
therein,  to  establish  a  bank  at  such  or  such  a  place.  The 
persons  named,  with  others  whom  they  chose  to  associate 
with  themselves,  met  together,  paid  in  a  little  money, 
generally  very  little;  chose  directors,  who,  in  turn,  chose 
a  president ;  and  at  once  began  to  issue  notes,  each  bearing 
the  signature  of  the  bank  officers  and  promising  to  pay  a 
certain  sum  of  money,  one  dollar  or  two  dollars,  or  five 
dollars,  upon  demand,  in  specie,  that  is,  in  gold  or  silver 
coins  made  by  the  United  States  government. 

113.  Bank-money. — The  idea  underlying  this  issue  of 
bank-notes  was  as  follows:  Merchants,  manufacturers, 
farmers  or  others,  who  desired  to  purchase  supplies  or 
labor,  would  come  to  the  bank  with  their  notes  of  hand, 
which  the  bank  would  discount  :  that  is,  the  banks  would 
accept  the  notes-of-hand,  paying  the  face  value  in  their  own 
bills,  first  taking  out  the  interest  for  the  three  months,  the 
six  months,  or  the  year,  for  which  these  notes-of-hand  were 
to  "run."  The  persons  whose  notes-of-hand  had  thus  been 
discounted,  paid  the  bank-notes,  or  "bank-bills,"  out  to 
their  laborers  or  to  others  from  whom  they  had  purchased 
supplies  or  materials,  expecting  that,  at  the  maturity  of 
their  notes-of-hand,  they  would  be  able,  out  of  the  proceeds 
of  their  business,  to  pay  the  bank  in  full,  either  in  its  own 
notes,  or  in  the  notes  of  other  banks,  near  by.  Meanwhile 
the  issuing  bank  was  to  receive  interest  on  the  paper-money 
it  had  thus  manufactured  and  put  into  circulation. 

This  interest,  however,  was  not  all  clear  profit  to  the 
bank.  There  was  the  cost  of  making  the  paper-money, 
which,  to  be  sure,  was  not  very  great,  involving  the  engrav- 
ing of  a  plate  and  the  printing  of  the  notes  therefrom. 


POLITICAL  ECONOMY.  125 

Tlien  there  were  the  current  expenses  of  the  business,  in- 
cluding the  rental  of  au  office,  the  salary  of  a  cashier  and 
of  a  clerk  or  clerks,  stationery,  postage,  etc.  Then,  again, 
there  was  the  cost  of  the  "  specie-reserve." 

114.  The  Specie-reserve. — Tliis  last  term  requires  to  bo 
explained.  It  was  always  possible  that  some  persons,  hold- 
ing the  notes  of  the  bank,  should  come  in  and  demand  the 
specie  which  the  notes  promised.  They  might  do  this, 
either  because  they  actually  wanted  the  gold  or  silver  for 
some  purpose ;  or  from  enmity  to  the  bank,  hoping  to 
"break"  it,  by  an  unexpected  demand;  or  because  the 
banks  had  issued  so  many  notes  as  to  create  a  "  premium 
on  gold,"  a  phrase  for  the  explanation  of  which  we  must 
refer  the  reader  to  the  next  chapter  (par.  143).  Now,  in 
order  to  meet  such  a  possible  demand,  the  bank  must  be 
actually  in  possession  of  some  specie. 

How  large  this  "^  reserve"  should  be,  depends  much  upon 
circumstances.  If  the  notes  of  a  bank  are  scattered  over  a 
territory  of  ten  thousand  square  miles,  it  is  plain  that  a 
much  smaller  number  are  liable  to  be  presented  for  pay- 
ment, at  any  one  time,  than  if  the  notes  were  nearly  all 
held  in  tlie  city  where  the  bank  has  its  office.  A  great 
many  other  things,  on  which  there  is  not  time  to  dwell, 
enter  to  affect  the  question,  how  large  the  specie  reserve  of 
any  given  bank  should  be. 

The  profit  of  the  bank,  through  the  manufacture  and 
issue  of  paper-money,  is,  then,  the  interest  on  its  circulat- 
ing notes,  after  deduction  of  the  following  items,  viz. : 

1st.  The  cost  of  manufacturing  the  notes. 

2d.  The  current  expenses  of  the  business,  that  is,  the 
cost  of  putting  the  notes  out  and  keeping  them  out. 

3d.  The  loss  of  interest  on  the  amount  held  as  a  reserve 
in  specie. 


126  POLITICAL  ECONOMY. 

115.  Wildcat  Banking. — It  was  the  profit  on  '*■  the  cir- 
culation "'  which  constituted  the  main,  and  often  the  sole, 
motive  force,  in  the  establishment  of  banks,  in  the  early 
history  of  the  United  States.  And  so  urgent  was  the  de- 
sire for  increasing  that  profit,  that  the  specie-reserve  was 
often  cut  down  in  the  most  reckless  manner.  In  some  of 
the  new  States,  the  phrase  "Wildcat  Banks"  was  not  in- 
appropriately applied  to  many  of  the  institutions  brought 
into  existence  at  this  time.  The  amount  of  specie  held  by 
them  was  often  so  small  as  to  have  been  ludicrous,  were  it 
not  for  the  constant  peril  to  the  business  interests  and  to 
the  piivate  happiness  of  the  community,  which  this  crimi- 
nal recklessness  involved.  A  reservoir  with  an  unsafe  dam 
is  hardly  a  greater  danger  to  the  village  situated  upon  the 
stream  below,  than  is  a  bank  with  an  inadequate  reserve. 
The  amount  of  suffering  inflicted  upon  the  innocent  and 
helpless,  the  destruction  of  accumulated  wealth,  the  paraly- 
sis of  productive  energies,  caused  by  the  breaking  of  rot- 
ten banks,  could  never  be  expressed  in  words.  If  the  State 
has  any  duties,  at  all,  beyond  merely  keeping  people  from 
picking  each  other's  pockets  and  cutting  each  other's 
throats,  the  first  of  those  duties  is  to  provide  adequate 
securities  against  the  abuse  of  pajjer-money  banking. 
Indeed,  as  a  means  of  picking  other  jDcople's  pockets,  bad 
banking  can  scarcely  be  surpassed  by  any  other  human 
agency. 

116.  The  Banking  Functions. — We  have  seen  in  what 
various  ways  banks  have  actually  grown  up  in  different 
countries  and  in  different  times.  But,  however  any  indi- 
vidual bank,  or  the  banks  of  any  country  as  a  whole,  may 
have  originated,  banks  all  tend  to  come,  in  time,  to  do 
about  the  same  things.  Nearly  all  of  them  act  more  or  less 
as  places  of  "safe  deposit."  Nearly  all  of  them,  at  one 
time  or  another,  take-on  the  character  of  finance  compa- 


POLITICAL  ECONOMY.  127 

uies,  helping  to  "place"  government  loans,  or  selling  the 
bonds  of  great  industrial  corpoi'ations.  Very  largely,  also, 
banks  make  and  issue  paper-money,  although  in  some 
countries  this  privilege  is  restricted  to  certain  favored 
banks,  or  to  a  single  bank  which  is  largely  controlled  by, 
and  perhaps  partly  owned  by,  the  State. 

But,  however  banks  originate,  and  whatever  they  do,  in 
one  or  another  of  the  foregoing  ways,  one  thing  they  all 
come  to  have  in  common.  This  is  the  management  of 
commercial  credit  (par.  110).  Commerce  may  be  carried  on 
to  a  considerable  extent  without  banks,  at  least  without  any 
institutions  known  by  that  name ;  but,  wherever  banks 
have  been,  for  one  purpose  or  another,  established,  they 
immediately  begin  to  draw-in  to  themselves  nearly  the 
whole  business  of  conducting  and  managing  the  credit 
system  of  the  community  in  which  they  are  placed. 

To  illustrate  the  operation  of  this  principle,  let  us  take 
the  case  of  a  bank  founded  in  one  of  the  small  Western 
cities  of  the  United  States,  say  about  1850.  The  only 
force  which  caused  this  l)ank  to  be  established  was  the  an- 
ticipated profit  of  the  issue  of  bank-notes  (jmrs.  112-11-1). 
But  no  sooner  was  it  established  than  people  who  had 
money  to  lend,  and  j)eople  who  desired  to  borrow  money, 
alike  began  to  resort  to  its  counter.  Those  Avho  did  not 
feel  themselves  shrewd  enough  to  loan  their  savings  to  ad- 
vantage, that  is,  at  once  profitably  and  safely,  brought 
them  to  the  bank.  The  officers  of  the  bank,  making  this 
their  principal  business,  giving  their  minds  to  it,  and  hav- 
ing ample  means  for  ascertaining  the  "standing"  of  the 
various  persons  in  the  community  who  might  wish  to  bor- 
row, could  loan  the  capital  so  placed  at  tlieir  disposal  on 
the  very  best  terms,  viz.,  at  the  highest  rate  of  interest  con- 
sistcijit  with  good  so(;urity. 

The  means  whicli  the  bank  officers  had  for  obtaining  in- 


128  POLITICAL  SCOlfOMT. 

formation  were  not  always  such  as  were  open  to  others. 
Reputable  merchants,  who  knew  their  business  to  be  in  a 
sound  state,  and  wished  to  borrow  capital  to  increase  tliat 
business,  would  lay  their  account-books  open,  in  confidence, 
to  the  officers  of  tlie  bank  ;  while,  on  the  other  hand,  in  tlie 
case  of  would-be  borrowers  who  were  of  a  more  doubtful 
character,  the  bank-officers  would  institute  private  inquiries 
as  to  their  personal  habits,  their  mode  of  living,  their 
punctuality  in  dealings. 

By  such  and  other  means,  the  officers  of  the  bank  we  are 
describing  were  enabled  to  loan  all  the  capital  which  the 
members  of  the  community  desired  to  entrust  to  them,  at 
the  very  highest  rate  of  interest  which  was  consistent  with 
good  security.  Of  this  interest,  the  larger  part  went  to  the 
owners  of  the  capital  ;  while  the  bank  made  a  handsome 
profit  through  a  small  commission  on  a  very  large  amount 
loaned.  There  were,  however,  a  few  long-headed,  shrewd, 
able  men  of  wealth  in  the  community  who  did  not  feel  that 
they  had  any  occasion  for  the  services  of  the  bank  in  this 
respect,  deeming  themselves  perfectly  competent  to  make 
their  own  loans  ;  and  in  some  cases  these  men  were  emi- 
nently successful,  looking  after  their  loans  with  a  careful- 
ness and  iiitentness  born  of  the  thought  that  it  was  their 
own  hard-earned  savings  which  were  at  stake. 

The  vast  majority,  however,  welcomed  this  means  of 
giving  and  taking  credit;  and,  in  general,  the  capital  loaned 
under  this  system  was  both  more  profitably  and  more  safely 
employed  than  it  would  have  been  had  each  one  of  its 
thousand  owners  undertaken  to  conduct  the  loan  of  his 
share  for  himself.  While  the  amount  of  wealth  which 
many  of  these  persons  actually  had  to  lend  was  very  small, 
the  aggregate  amount  thus  brought  into  the  bank  was  very 
large;  and  from  this  great  reservoir  of  capital  streams  were 
made  to  flow,  in  proper  times  and  in  proper  amounts,  to 


POLITICAL  ECONOMY.  129 

water  tlie  whole  field  of  industry.  Whatever  of  good  a 
merchant  or  a  manufacturer  may  claim  to  do  for  the  com- 
munity in  which  he  lives  and  conducts  his  business,  it  is 
certainly  true  that  a  banker,  who  is  both  able  and  honora- 
ble, performs  an  even  more  useful  work.  The  fields  of 
industry  which,  but  for  him,  would  now  be  baking  from 
drought,  and  now  be  flooded  and  devastated  by  tempestu- 
ous torrents,  are,  through  the  judicious  operations  of  bank- 
ing, kept  evenly  and  equably  irrigated  by  a  steady  flow  of 
commercial  credit. 

117.  How  Capital  Comes  into  a  Bank. — We  have  spoken  of 
a  bank  as  the  intermediary  between  those  who  wish  to  lend 
and  those  who  wish  to  borrow.  It  must  not,  however,  be 
supposed  that  men  bring  carts  and  oxen  and  tools  and  food 
and  clothing  into  the  bank,  and  that  those  who  wish  to  use 
such  things  in  production  or  trade  go  to  the  bank  for  them. 
Capital  comes  into  the  possession  of  a  bank  always  in  the 
form  of  "rights,"  or  credits.  Thus,  a  man  who  has  sold 
his  crops  or  his  manufactured  goods,  and  i"eceived  therefor 
notes-of-hand,  promising  payment,  eitlier  upon  demand  oi- 
at  some  future,  fixed,  date,  takes  these  notes-of-hand  to 
the  bank  and  there  "indorses  them:"  that  is,  by  a  writing 
upon  the  back  he  makes  them  payable  to  the  bank  itself. 
For  this  the  bank  becomes  a  delator  to  him,  while  it  be- 
comes the  creditor  of  the  persons  who  gave  these  notes. 
These  persons,  tlierefore,  it  can  order  to  pay  money,  in  tlie 
amounts  and  at  the  times  stated  on  the  face  of  the  notes, 
severally.  This  power  it  makes  use  of  in  lending  ca2)ital 
to  those  who  wish  to  Ijorrow  and  who  can  satisfy  the  oflficers 
of  the  bank  of  their  financial  soundness. 

Sometimes  the  amount  of  rights,  or  credits,  which  the 
bank  has  thus  had  placed  at  its  disposal,  for  the  purpose  of 
discounting  notes,  is  many  times  its  own  capital.  It  is  the 
certain  reward  of  prudence  and  integrity  in  the  management 


130  POLITICAL  ECONOMt. 

of  a  bank,  that  people  continually  increase  the  amount  they 
have  on  deposit,  until,  in  time,  a  good  old  bank  comes  to 
have  a  really  enormous  body  of  wealth  at  its  disposal.  This 
includes,  not  only  the  sums  which  are  brought  to  the  bank 
for  the  specific  purpose  of  being  loaned  out,  but  also  the 
"  reserves"  of  merchants,  on  which  no  interest  is  expected. 
Some  merchants  have,  almost  habitually,  five,  ten,  or 
twenty  thousand  dollars  deposited  in  the  banks  in  which 
they  do  business.  This  is  because  it  is  both  more  con- 
venient and  more  safe  for  the  merchant  that  the  bank, 
with  its  vaults  and  its  barred  windows  and  its  armed 
watchmen,  should  take  care  of  this  property,  than  that  it 
should  remain  in  his  own  hands. 

Of  course,  if  only  one  merchant  should  thus  leave  a  sum 
on  deposit  at  the  bank,  the  officers  could  not  safely  loan 
any  part  of  it,  since  the  owner  might,  any  day  or  any  hour, 
call  for  the  whole.  But,  if  one  hundred  merchants,  say, 
should  leave  on  deposit  an  average  of  ten  thousand  dollars 
each,  the  bank  could  safely  loan  a  considerable  part  of  the 
million  dollars,  since  it  would  be  practically  impossible  that 
all  the  merchants  should  call  for  their  money  at  the  same 
time.  The  bank  might  safely  lend  four  hundred  thousand 
dollars  on  mortgage  of  real  estate;  lend  three  hundred 
thousand  on  "  short  time"  business  paper,  that  is,  on  notes- 
of-hand,  given  by  merchants  or  manufacturers,  payable  in 
a  few  weeks,  or  a  few  days,  or  even  '^on  call;"  and  hold 
two  hundred  thousand,  more,  in  "governments,"  or  other 
stocks  or  bonds,  which  could  be  sold  almost  at  a  moment's 
notice.  The  remaining  one  hundred  thousand  dollars, .out 
of  the  million,  it  might  keep  in  the  form  of  specie  or  l)ank- 
notes,  ready  for  any  call  which  might  be  made  upon  it. 
It  will  thus  appear  that,  out  of  a  million  of  dollars  of  com- 
mercial deposits,  the  owners  of  which  expect  no  interest 


POLITICAL  ECONOMY.  131 

the  bank   might  properly  and    safely  use  nine  hundred 
thousand  dollars,  receiving  a  handsome  income  therefrom. 

118.  Banking  Economizes  the  Use  of  Money. — Besides 
economizing  the  use  of  capital,  in  the  way  we  liave  just 
shown,  banks  greatly  economize  the  use  of  actual  money. 
If  there  were  no  banks^.  each  merchant,  each  private  citizen 
of  means,  would  have  to  keep  by  him,  in  his  pockets  or  in 
a  chest,  a  considerable  amount  of  "  ready  money,"  for  daily 
uses  or  to  meet  sudden  demands.  If,  however,  the  mem- 
bers of  the  community,  alike  tlie  very  rich  and  the  merely 
well-to-do,  form  a  habit  of  keeping  their  money  in  bank, 
there  will  be  a  great  saving  in  the  amount  of  money  re- 
quired, on  tlie  whole.  Twenty  thousand  dollars,  perhaps 
only  ten  thousand  dollars,  in  bank,  will  go  as  far  towai-ds 
meeting  the  needs  of  the  community,  as  fifty  thousand 
dollars  in  private  hands.  The  days  on  which  one  man 
wants  to  use  money  will  not  be  the  same  as  the  days  on 
which  his  neighbor  has  occasion  to  use  it ;  and  the  bank, 
holding  the  money  for  all,  will  be  able  to  make  a  much 
smaller  amount  do  a  much  larger  work  in  effecting  ex- 
changes. Hence  it  follows  that  countries  where  the  bank- 
ing system  is  highly  developed,  as  in  England  and  the 
United  States,  require  very  much  less  of  actual  money 
than  countries  like  France  and  Germany,  where  there  are 
comparatively  few  banks,  and  wliere  the  great  majority  of 
the  people  keep  their  funds  in  their  own  shops  or  houses. 

119.  Banks  Economize  Time,  Labor  and  Risk,  in  Paying 
Debts. — Besides  economizing  the  use  of  money,  banks  elfect 
an  enormous  saving  in  the  time,  the  labor  and  the  risk,  in- 
volved in  the  daily  payment  of  the  debts  incurred  in  the 
ordinary  course  of  business.  In  every  large  city,  there  are 
every  day  to  be  paid,  and  to  be  received,  hundreds  of  thou- 
sands, or  even  millions,  of  dollars;  and  this  great  work  is 
performed  by  tlie  bank  with  infinitely  less  of  effort  thaja 


132  POLITICAL  ECONOMY. 

would  be  required  if  tlie  siime  work  were  to  be  done  by 
individuals,  each  for  himself.  Let  us  suppose  that  in  a 
certain  city  there  are  one  thousand  merchants  or  traders, 
and  that  each  one  of  these  has,  on  the  average,  to  make 
twenty  payments  a  day.  Think  of  the  amount  of  time  and 
labor  that  would  be  expended  in  sending  trusty  clerks  or 
messengers  all  over  that  city,  at  the  end  of  the  day,  to 
make  those  twenty  thousand  payments !  Think  also  of  the 
risk  involved  in  sending  such  sums  of  money  through  the 
streets :  risk  arising  both  from  the  danger  of  robbery  *  and 
also  from  the  possible  dishonesty  of  clerks  and  messengers! 
But  when  these  payments  are  to  be  made  into  the  bank, 
and  that  generally  by  checks,  drawn  upon  deposits  already 
in  the  bank,  the  time,  labor  and  risk  involved  become  re- 
duced to  a  minimum. 

120.  The  Cancellation  of  Indebtedness. — The  foregoing 
would  hold  true,  were  the  times  in  which  merchants  have 
to  make  payments  not  generally  the  same  as  those  in  which 
they  have  to  receive  payments.  But,  since  merchants  are 
all  the  while  both  buying  and  selling,  the  payments  to  be 
made,  and  to  be  received,  on  the  same  day,  largely  cancel 
each  other.  One  day  a  merchant  may  have  two  thousand 
dollars  to  pay,  and  twenty-five  hundred  to  receive.  In 
this  case,  the  bank  "  sets  off"  the  one  sum  against  the  other, 
so  that  the  merchant's  debtors  have  only  to  provide  five 
hundred  dollars  to  meet  the  difference.  On  the  next  day, 
perhaps,  he  has  fifteen  hundred  dollars  to  receive,  and  two 
thousand  dollars  to  pay.     In  this  case,  he  sends  his  bank  a 

*  At  one  time  there  was  known  in  New  York  a  class  of  men  called 
Butcher- cart  Thieves,  who  lay  in  wait  for  messengers  carrying  bags 
of  specie  or  parcels  of  bank-bills.  After  snatching  a  bag,  the 
thief,  or  highwayman,  would  jump  into  a  butcher's  cart,  drawn  by 
a  fleet  horse,  with  a  confederate  at  the  reins,  and,  in  the  surprise  and 
confusion,  would  often  escape  pursuit. 


POLITICAL  ECONOMY.  133 

check  for  five  hundred  dollars,  drawn  on  his  own  deposit 
in  the  bank,  or,  else,  some  one  else's  check,  Avhich  he  had 
purchased  for  the  purpose ;  and,  again,  all  accounts,  so  far 
as  he  is  concerned,  are  balanced. 

The  cancellation  of  indebtedness,  of  which  we  are  here 
speaking,  is  carried  to  an  inconceivable  extent  in  modern 
commerce.  The  bank,  through  the  almost  universal  prac- 
tice of  "  depositing'"  commercial  paper,  becomes,  by  turns, 
creditor  to  all  debtors,  in  the  community,  and  debtor  to 
all  creditors;  and,  having  thus  in  its  hands  nearly  all  notes 
and  bills  maturing,  day  by  day,  it  is  able  to  offset  one  by 
another,  so  that  only  a  very  small  fraction  requires  to  be 
paid  in  money. 

121.  The  Clearing-house. — We  have  thus  far  written  as 
if  there  were  but  one  bank  in  any  community,  however 
large.  In  a  great  city,  however,  many  banks  may  be  re- 
quired to  do  all  the  business  of  all  tlie  merchants.  In  the 
city  of  Boston  there  are  more  than  forty  banks  in  opera- 
tion. Each  bank  carries  on  the  cancellation  of  indebted- 
ness within  itself,  so  far  as  possible;  and,  at  the  end  of 
each  business  day,  sends  a  clerk  to  a  Clearing-house,  or 
bankers'  bank,  with  a  statement  of  the  amount  due  from 
it  to  every  other  bank  in  the  city,  and  of  the  amount  due 
to  it  from  every  other  bank,  together  with  the  money 
necessary  to  make  up  the  difference,  if  the  balance  be 
against  the  bank  in  question.  If,  on  the  other  hand,  the 
balance  be  in  favor  of  the  bank  in  question,  the  clerk  is 
authorized  to  receive  the  difference. 

122.  Banking  Promotes  Punctuality  in  Payments. — Be- 
sides effecting  a  great  economy  in  the  use  of  capital;  a 
great  economy  in  the  use  of  money;  a  great  economy  in 
the  time,  labor  and  risk  involved  in  making  payments, 
banks  bring  into  commercial  life  a  principle  of  much  im- 
portance to  industry  and  trade.     This  is  the  principle  of 


134  POLITICAL  ECONOMY. 

punctuality  in  making  payments.  This  may  be  said  to  be 
almost  wholly  a  product  of  the  banking  system.  AVherever 
payments  are  clue  from  one  person  to  another,  even  when 
the  debtor  is  well-to-do,  there  is  always  great  uncertainty, 
and  generally  not  a  little  delay,  as  to  the  time  of  payment. 
If  rents  are  due  on  the  first  of  the  month,  a  few  tenants 
pay  on  that  day;  others,  on  the  second;  some,  on  the  third, 
fourth  and  fifth;  others,  not  until  the  tenth;  others,  still, 
oTily  after  being  ' '  dunned"  again  and  again.  If  payments 
are  due  on  account  of  groceries  or  meats  or  clothes  pur- 
chased, those  payments  generally  dribble  along,  over  weeks 
and  even  months.  Such  is  the  uniform  experience  of  all 
communities  in  the  matter  of  paying  debts,  whenever  the 
transactions  are  "  between  man  and  man." 

In  respect,  however,  to  all  payments  which  are  to  be 
made  into  a  bank,  the  rule  of  absolute  punctuality  is  uni- 
versally enforced,  without  fear  or  favor.  If  a  note  is  due 
on  a  certain  day,  and  the  payment  is  not  made  before  the 
close  of  banking  hours,  say  three  o'clock  in  the  afternoon, 
the  note  "goes  to  protest:"  that  is,  an  officer  of  the  bank 
goes  before  a  notary  public  and  makes  oath  that  payment 
has  been  demanded  and  has  not  been  made.  The  delin- 
quent is  notified  of  this,  and  is  informed  that,  unless  he 
immediately  makes  jiayment,  together  with  "costs,"*  he 
will  be  proceeded  against  at  law.  It  does  not  matter  who 
the  man  is  or  how  rich  he  is.  It  is  needless  to  say  that  a 
protest  is  always  a  source  of  intense  mortification  to  a  mer- 
chant or  a  banker.  Indeed,  it  is,  except  to  a  man  of  great 
wealth  and  high  credit,  almost  fatal.  The  announcement, 
in  the  newspapei-s,  that  such  or  such  a  firm  has  allowed  a 
note  to  go  to  protest,  is  generally  accepted  as  meaning  that 
the  firm  is  bankrupt.  Consequently,  every  business  man 
or  business  house  takes  every  precaution ;  and,  in  ease  ol 

*  That  is,  the  cost  of  protest,  including  the  notary's  fes- 


POLITICAL  ECONOMY.  135 

financial  em"barrassment,  strains  every  nerve  and  makes 
every  sacrifice^  to  avoid  such  a  calamity. 

Now,  this  punctuality  in  payments  which  the  bank  de- 
mands and  enforces,  is  of  the  highest  advantage  to  produc- 
tion and  trade.  Indeed,  it  may  he  said  to  he  absolutely 
essential  to  the  vast  operations  of  modern  industry.  Eetail 
trade  has  necessarily  to  submit  to  all  the  inconveniences 
and  losses  that  are  involved  in  the  lack  of  punctuality 
which  we  have  noted;  but  the  great  production,  the  great 
trade,  could  not  be  carried  on  unless  the  manufacturer  or 
the  wholesale  merchant  knew  how  much  he  could  rely 
upon  certainly  receiving  each  day,  to  meet  the  obligations 
due  from  him  on  that  day.  It  is,  therefore,  a  service  of 
inestimable  importance  which  banks  render  to  society  by 
enforcing  the  rule  of  absolute  punctuality  in  payments. 

But,  it  will  be  asked,  is  not  this  advantage  to  society,  as 
a  whole,  obtained  at  the  cost  of  much  hardship  and  suifer- 
ing  on  the  part  of  individuals  ?  I  answer  that,  here  and 
there,  now  and  then,  inconvenience  and  even  injury  may 
result  to  persons  from  the  severe  and  unrelenting  enforce- 
ment of  this  rule;  but  that,  in  the  vast  majority  of  cases, 
the  requirement  of  punctuality  not  only  does  no  injustice, 
but  is  of  actual  benefit,  even  to  the  debtors  themselves. 
Speaking  broadly,  procrastination  always  and  greatly  in- 
creases the  burden  of  debt.  If  railroad  trains,  instead  of 
leaving  the  station  on  the  minute,  so  far  as  possible,  as  they 
now  undertake  to  do,  were  to  adopt  the  policy  of  waiting 
for  people,  it  is  probable  that  a  great  many  more  persons 
would  lose  their  trains  than  do  where  the  rule  of  punctual- 
ity is  enforced.  To  hold  men  sharply  and  sternly  up  to 
their  duty,  may  require  measures  which  seem  harsh;  but 
there  can  be  no  doubt  that  it  is,  on  the  whole,  a  great 
kindness.     Duties  are  never  so  easy  to  perform  as  on  the 


136  POLITICAL  ECONOMY. 

very  day  when  they  ought  to  be  performed.  Debts  are 
never  so  light  as  on  the  day  when  they  first  come  due. 

123.  Banking  Promotes  Commercial  Integrity.  —  But 
there  is  more  to  be  said  on  this  point.  The  banking  sys- 
tem, by  its  requirement  of  punctuality  in  payments,  has 
done  more  to  promote  commercial  integrity  than  any  other 
cause,  perhaps  than  all  other  causes  put  together.  Pro- 
crastination not  only  increases  the  burden  of  debts  ;  it  in- 
sensibly but  surely  generates  dishonest  feelings  regarding 
them.  A  man  who  has  again  and  again  put  off  the  pay- 
ment of  a  debt  at  last  comes  to  feel  that  that  debt  is 
somehow  a  great  wrong  to  him,  and  is  only  too  ready  to 
take  advantage  of  any  means  of  escaping  payment,  how- 
ever shabby  or  shameful.  Delay  of  payment  always  means 
doubt  regarding  payment;  doubt  regarding  payment  always 
sets  evil  thoughts  at  work  in  the  brain,  to  find  the  way  of 
avoiding  payment  altogether. 

That  kind,  or  that  degree,  of  honesty  which  keeps  men 
from  actual  I'obbery  or  theft,  comes  at  a  much  earlier  stage 
of  society  than  that  kind,  or  that  degree,  of  honesty  which 
makes  men  cheerfully  willing  to  pay  the  debts  they  have 
fairly  and  openly  contracted.  For  one  man,  in  our  present 
social  state,  who  would  steal,  twenty  will  do  that  which  is 
no  better  than  stealing,  in  order  to  escape  the  payment  of 
honest  debts. 

When  banks  have  long  existed  in  any  community,  the 
instincts  of  commercial  honesty  become  developed  in  a 
really  remarkable  degree.  Men,  knowing  that  they  have 
got  to  pay  their  debts,  and  to  pay  them  on  the  very  day 
they  are  due,  take  it  as  a  matter  of  course.  What  men 
take  as  a  matter  of  course  they  take  easily.  In  such  a 
community,  the  mind  of  the  merchant  does  not  begin  to 
dwell  on  the  dangerous  thought  of  first  postponing  and 
then   escaping  payment.     The  way  to   evasion  is  almost 


POLITICAL  ECONOMY.  137 

ahvaj-s  through  procrastination.  If  the  door  to  procrasti- 
nation be  barred,  evasion  will  be  less  and  less  resorted  to, 
less  and  less  thought  of, 

124.  Foreign  Exchange. — We  have  spoken  of  the  cancel- 
lation of  indebtedness  among  the  merchants  of  a  city. 
The  same  principle  is  largely  carried  out  to  cities,  states 
and  nations.  For  example,  there  are  a  great  many  mer- 
chants in  New  York  who,  every  month  or  every  day,  have 
sums  to  pay  to  merchants  in  Chicago,  for  corn  and  wheat, 
beef  and  pork.  There  are,  also,  a  great  many  merchants 
in  Chicago  who  have  sums  to  pay,  in  the  same  times,  to 
merchants  in  New  York,  for  dry-goods,  groceries,  and 
hardware.  If,  now%  the  debtor  merchants  in  New  York 
had  to  send  to  Chicago  all  the  money  necessary  to  dis- 
charge their  obligations,  and  the  debtor  merchants  in 
Chicago  had  to  do  the  same  thing  towards  New  York,  there 
would  be  an  enormous  amount  of  money  always  going 
backward  and  forward  between  the  two  cities,  at  great 
cost,  great  risk  and  much  loss  of  time.  Instead  of  this, 
there  is  a  mutual  cancellation  of  indebtedness.  Just  as  far 
as  this  can  be  carried.  A  dry-goods  merchant  of  Chicago, 
who  has  to  pay  a  hundred  thousand  dollars  in  New  York, 
goes  to  a  wlieat  merchant,  on  the  next  street,  and  buys 
from  him  a  draft,  or  order,  upon  a  New  York  wheat  ex- 
porter, for  that  sum.  This  he  sends,  by  mail,  to  his  own 
creditor  in  New  York,  who  calls  upon  the  wheat  exporter 
for  the  money.  Thus  two  large  debts  have  been  paid, 
without  any  money  whatever  passing  between  Chicago  and 
New  York.  Of  course,  it  will  not  always  happen  that  the 
amount  of  debts  due  to  a  city,  in  a  certain  time,  is  equal  to 
the  amounts  of  debts  due  from  that  city  in  that  time. 
Where  there  is  a  failure  of  coincidence  as  to  the  amount  of 
indebtedness  between  two  cities,  money  must  be  sent,  by 
one  of  them,  to  make  up  the  difference. 


138  POLITICAL  ECONOMY. 

Whenever  the  principle  of  the  cancellation  of  indebted- 
ness is  carried  out  to  cities  and  states  and  nations,  we  use 
the  term  Exchange,  or  Foreign  Exchange.  The  term, 
foreign  exchange,  is  only  properly  used  where  different 
nations  are  concerned. 

125.  Par  of  Exchange. — We  have  assumed  the  case  of  a 
merchant  in  Chicago  who  has  one  hundred  thousand  dol- 
lars to  pay  in  New  York,  and  who,  instead  of  sending  the 
money  to  New  York,  purchases  the  right  of  another  Chi- 
cago merchant,  probably  in  another  branch  of  business,  to 
receive  that  amount  of  money  in  New  York  ;  and  in  this 
way  pays  his  debt.  But  at  what  rate  shall  the  first  mer- 
chant purchase  this  right  ?  Shall  he  pay  for  it  a  hundred 
thousand  dollars,  or  more,  or  less  ?  That  will  depend  on 
whether  "exchange  on  New  York"  is  "at  par,"  or  "above 
par,"  or  ''below  par."  Let  us  illustrate  the  meaning  of 
these  terms. 

Suppose  that,  at  the  time  in  question,  Chicago  merchants 
had  twenty-five  millions  of  dollars  to  pay  in  New  York, 
while  New  York  merchants  had  only  twenty  million  dol- 
lars to  pay  in  Chicago.  It  is  evident  that  all  the  Chicago 
merchants  who  had  money  to  pay  in  New  York  could  not 
find  merchants  in  their  own  city  who  had  the  right  to 
receive  money  in  New  York.  Competition  would  then 
begin  for  the  rights  which  were  to  be  purchased.  The 
Chicago  merchants  would  be  obliged  to  pay  something 
more  than  a  thousand  dollars  for  the  right  to  receive  a 
thousand  dollars  in  New  York.  If,  on  the  other  hand,  the 
amount  to  be  paid  by  New  York  to  Chicago  exceeded  the 
amount  to  be  paid,  in  the  same  time,  by  Chicago  to  New 
York,  competition  would  set  in  among  the  "sellers  of  ex- 
change" in  Chicago.  Each  of  these  would  be  willing  to 
let  his  right  to  receive  a  thousand  dollars  in  New  York  go 
for  something  less  than  a  thousand  dollars,  since,  other- 


POLITICAl.  JivONOMT.  139 

wise,  he  would  be  obliged  either  to  bring  the  money  actu- 
ally to  Chicago,  at  some  expense,  or  else  to  leave  the  money 
idle  in  New  York. 

Exchange  is  said  to  be  "  at  par"  between  two  places, 
when  a  man,  by  paying  in  a  certain  sum  of  money  in  one 
of  these  places,  can  purchase  the  right  to  receive  an  equal 
amount  of  money  in  the  other  place.  Exchange  is  said  to 
be  "above  par,"  when  a  man  is  obliged  to  pay  in  more 
money  in  the  place  where  he  does  business  than  the 
amount  that  he  can  thereby  purchase  the  amount  to 
receive  in  the  other  place.  Exchange  is  said  to  be  "below 
par,"  when  a  man  can  purchase  the  right  to  receive  money 
in  the  other  place  by  paying  in  a  smaller  amount  in  his 
own  town  or  city. 

126.  The  Limits  of  Exchange. — What  are  the  limits  of 
exchange  :  that  is,  how  far  may  exchange  rise  above  par ; 
how  far  may  it  fall  below  par?  I  answer,  that  the  limits 
of  exchange  between  two  places  are  fixed  by  the  cost  of 
transporting  money  between  those  places.  If  "  exchange 
on  New  York"  rises  above  par  in  Chicago,  it  can  go  no 
higher  than  the  cost  of  sending  money  on  from  Chicago  to 
New  York,  because,  rather  than  pay  more  than  this,  Chicago 
merchants  will  actually  send  the  money.  For  a  similar 
reason,  exchange  cannot  fall  below  par  by  more  than  the 
cost  of  bringing-on  the  money. 

Of  course,  the  reader  will  see  that  the  fact  of  exchange 
being  above  par,  or  being  below  par,  constitutes  a  certain, 
small,  disadvantage,  or  advantage,  as  the  case  may  be,  to 
the  trade  of  a  city  or  a  country.  If  I,  as  a  merchant  in 
New  York,  sell  certain  goods  to  a  merchant  in  Liverpool 
for  one  thousand  dollars,  but  have  to  sell  my  right  to 
receive  that  sum  for  nine  huiulred  and  seventy-five  dollars, 
it  is,  to  me,  the  same  as  if  I  had  sold  the  goods  for  nine 
hundred  and  seventy-five  dollars.     If,  on  the  other  hand, 


140  POLITICAL  ECONOMY. 

I  could  have  sold  my  right  to  receive  the  money,  at  a 
premium  of  twenty-five  dollars,  it  would  have  been  the 
same  to  me  as  if  I  had  sold  the  goods  for  one  thousand  and 
twenty-five  dollars. 

127.  Three-cornered  Exchange.  —  We  have  thus  far 
spoken  as  if  the  cancellation  of  indebtedness,  by  means  of 
so-called  exchange,  were  carried  on  between  two  cities  or 
two  countries  only.  As  a  matter  of  fact,  three  cities  or 
three  countries  may  take  part  in  effecting  this  cancellation 
of  indebtedness.  The  United  States,  for  example,  sells  to 
England  much  more  than  it  buys  from  England;  and,  there- 
fore, so  far  as  these  two  countries  are  concerned,  there 
would  be  a  great  stream  of  money  constantly  fiowing  from 
England  to  the  United  States.  But  the  United  States 
buys  much  more  from  China  than  it  sells  to  China  ;  while, 
on  the  conti-ary,  England  sells  much  more  to  China  than 
she  buys  from  that  country.  The  merchants  of  the  United 
States,  consequently,  pay  their  debts  to  China  by  "ex- 
change on  London."  Having  the  right  to  receive  large 
sums  in  London,  they  sell  these  rights  to  Chinese  mer- 
chants, who  are  glad  to  obtain  them  in  order  to  pay  the 
indebtedness  of  China  to  England.  In  this  way,  it  will 
be  seen,  the  amount  of  indebtedness  which  is  cancelled 
through  the  operations  of  "  exchange"  is  greatly  increased, 
and  the  amount  of  money  to  be  actually  sent  from  country 
to  country  is  correspondingly  diminished. 

We  have  spoken  of  three-cornered  exchange  ;  but,  in 
reality,  foreign  exchange  is  a  many-sided  figure.  What  we 
have  represented  the  United  States,  England  and  China 
as  doing,  all  nations  do,  so  far  as  they  can,  each  using 
every  favorable  balance  with  another  nation  to  offset  some 
portion  of  their  indebtedness  to  still  other  countries. 

The  operations  of  exchange  are  largely  carried  on 
through  banks,  although  a  special  class  of    "dealers   in 


POLIITGAL  ECONOMY.  141 

exchange"  arises  in  all  cities  where  this  business  is  espe- 
cially important.  The  chief  centre  of  exchange-operations 
is  London,  To  this  great  clearing-house  are  sent  "bills  of 
exchange"  from  every  quarter  of  the  globe.  No  matter  in 
what  city,  upon  what  continent,  a  man  may  wish  to  pay  a 
debt,  he  can  almost  always  find  in  London  some  one  who 
has  a  "credit"  on  that  city,  that  is,  a  right  to  receive 
money  there.  By  purchasing  tliis  right,  or  credit,  and 
sending  it  to  that  city,  he  can  pay  his  debt  there  without 
sending  the  money. 

128.  The  Banking  Agencies. — Such,  as  clearly  as  I  can 
describe  them  in  this  short  space,  are  the  Banking  Func- 
tions.    The  banking  agencies  may  be  classed  as  four  : 

1st.   State,  or  government,  banks. 

2d.  Joint-stock  banks. 

3d.  Private  banks. 

4th.  Bill-brokers  and  individual  dealers  in  e;xchange. 

The  banking  agency  which  has  been  chiefly  employed  in 
the  United  States,  is  the  joint-stock  bank.  The  vast 
majority  of  all  the  banking  work  in  the  history  of  this 
country  has  been  performed  by  banks  of  this  character, 
although  private  banks  are  not  unknown,  and  the  profes- 
sion of  bill-broker  has  always  been  extensively  followed. 
In  the  early  part  of  this  century  a  very  large  proportion  of 
the  banking  work  of  England  was  done  by  private  banks  ; 
but  during  the  last  fifty  years  the  proportion  of  private 
banks  has  been  constantly  diminisliing,  and  their  work  has 
been  more  and  more  taken  up  by  joint-stock  banks. 

In  the  United  States  down  to  1865,  joint-stock  banks 
were  generally  created,  or  '^  chartered,"  by  general  or 
special  acts  of  the  legislatures  of  the  several  States.  Since 
that  date,  however,  most  of  tlie  banks  of  this  country  have 
been  brought  under  the  National  Banking  Law  ;  and  their 
issues  of  bank-notes  are  reguhited  by  the  Treasury  Depart- 


142  POLITICAL  ECONOMY. 

ment  at  Washington.  Formerly  the  hank-money  of  the 
United  States  was  of  the  most  heterogeneous  character. 
The  banks  of  some  States  made  very  had  money,  wliile  the 
hanks  of  other  States  made  very  good  money,  and  the 
banks  of  other  States  made  money  neither  very  bad  nor 
very  good.  Now,  all  the  bank  issues  of  the  United  States 
are  homogeneous;  and  no  man  cares  whether  the  bank- 
notes he  has  in  his  pocket  come  from  Massachusetts,  from 
Michigan,  or  from  Missouri. 


CHAPTER  XV. 
POLITICAL  MONEY :  INFLATION. 

129.  The  Essence  of  Political  Money. — We  have  thus  far 
spoken  of  two  kinds  of  money.  The  first  might  perhaps 
be  called  natural  money.  It  is  sometimes,  though  not 
quite  correctly,  called  "value-money."  In  the  United 
States,  it  is  often  called  "hard  money."  This  is  money  of 
which  it  may  be  said  that,  no  matter  what  it  is  made  of, 
the  supply  is  naturally  limited  by  the  cost  of  production. 
Take  metal  money,  for  instance,  whether  of  copper,  of 
silver,  or  of  gold.  The  reason  why  the  supply  is  no  greater 
than  it  is,  is  because  the  cost  of  production  is  no  less  than 
it  is.  Diminish  the  cost  of  production,  and  the  supply 
might  and  probably  would  be  correspondingly  increased  ; 
but,  so  long  as  the  cost  of  production  remains  the  same, 
the  supply  cannot  be  greatly  or  rapidly  increased.  To 
raise  two  hundred  thousand  ounces  of  gold  from  the  crust 
of  the  earth  requires  twice  as  much  labor  as  to  raise  one 
hundred  thousand  ounces. 

The  second  kind  of  money,  viz.,  bank-money,  is  not  sub- 
ject to  natural  limitations  of  supply.  The  cost  of  the  ma- 
terials out  of  which  such  money  is  made,  viz.,  paper,  an 
engraver's  plate  and  printer's  ink,  bears  a  very  small  pro- 
portion to  the  value  for  which  the  notes  are  expected  to 
pass  in  circulation.  The  cost  of  making  a  one-dollar  bank- 
bill  may  perhaps  be  one  cent.  The  cost  of  making  a  ten- 
dollar  bank-l)ill  is  no  greater :  "hence,  the  additional  nine 
dollars  of  this  money  cost  nothing.     We  may,  therefore, 

143 


144  POLITICAL  ECONOMY. 

say  that  bank-money  has  no  natural  limitation  of  supply. 
It  is  as  easy  to  make  ten  millions  of  it  as  to  make  one 
million. 

But,  while  bank-money  has  no  natural  limitation  of 
supply,  there  is  a  more  or  less  stringent  commercial  limi- 
tation, found  in  the  fact  that  the  bank  is  by  law  obliged  to 
give  specie,  dollar  for  dollar,  for  all  its  own  bills  Avhich  may 
be  presented  to  it.  If,  then,  bank-money  be  put  out  in 
excess,  there  will  (for  reasons  which  will  be  shown  in 
pars.  140-1),  at  once  or  at  an  early  date,  begin  a  movement 
which  will  bring  the  bills  back  to  the  bank,  for  redemption 
in  coin.  The  bank,  therefore,  in  order  to  avoid  "  suspen- 
sion of  specie  payments,"  which  is  failure,  or  bankruptcy,  is 
bound  to  be  careful  not  to  put  out  its  notes  in  excess,  and 
to  be  always  provided  with  ample  reserves  of  specie.  This 
necessity  constitutes  what  I  have  called  the  commercial 
limitation  upon  the  supply  of  this  kind  of  money.* 

The  movement  of  bank-notes  back  to  the  bank,  for  re- 
demption in  coin,  is  called  the  Eeflux.  Most  economists 
hold  that  the  reflux  takes  place  so  promptly  that  bank- 
money  can  never  be  issued  in  excess,  to  any  degree  or  for 
any  period  of  time.  There  are  some  economists  who  hold 
that  the  reflux  does  not  begin  so  promptly  but  that  excess 
may  occur,  in  some  degree,  and  be  continued  for  some  time. 
All,  however,  are  agreed  that,  if  the  laws  punishing  banks 

*  I  am  here  speaking  of  bank-money,  in  communities  where  the 
principles  of  sound  banking  are  known  and  respected.  In  the  early- 
history  of  the  United  States,  much  of  the  paper  put  out  by  the  banks 
(see  par.  115)  was  strictly  inconvertible  paper-money — just  as  much  so. 
as  if  redemption  had  never  been  promised,  for  redemption  was  never 
intended  and  was  not  provided  for.  Neither  law  nor  public  opinion 
enforced  the  obligation  of  the  bank  to  pay  specie  on  demand.  Banks 
were  allowed  to  continue  in  business  after  they  had  failed  to  redeem 
their  notes  ;  and  even  declared  dividends  out  of  the  profits  of  money 
which  thcj'  withheld  from  their  lawful  creditors. 


POLITICAL  ECONOMY.  145 

for  insolvency  are  severe  and  are  strictly  enforced,  excess 
can  never  be  carried  to  a  great  extent,  or  be  continued 
through  long  periods  of  time,  owing  to  the  reflux.  We 
may,  therefore,  safely  say  that  this  kind  of  money  is  sub- 
ject, in  a  very  high  degi-ee  if  not  altogether,  to  a  commer- 
cial limitation  of  supply. 

Of  the  third  kind  of  money,  that  of  which  we  are  about 
to  speak,  it  may  be  said  that  it  is  subject  to  neither  natural 
nor  commercial  limitations  of  supply.  Like  bank-money, 
it  has  no  appreciable  cost  of  production,  since  it  is  as  easy, 
or  almost  as  easy,  to  make  twenty  millions  of  it  as  to  make 
ten  millions,  or  one.  Unlike  bank-money,  it  is  not  sub- 
ject to  reflux,  because  the  government  which  issues  it  is  not 
bound  to  redeem  it,  dollar  for  dollar,  in  coin. 

130.  Political  Money  Described. ^ — What  we  here  call  po- 
litical money  is  sometimes  called  government  paper-money, 
or  "Fiat"  money.  It  consists  of  bills,  or  notes,  or  scrip, 
issued  from  the  treasury  of  the  government  itself.  Pay- 
ment in  coin  may  or  may  not  be  promised  upon  the  face  of 
the  notes  ;  but,  inasmuch  as  the  government  cannot  be 
sued  by  its  subjects,  or  citizens,  and  inasmuch  as  the  gov- 
ernment can  never,  by  its  own  courts,  be  declared  bankrupt 
and  sent  into  insolvency,  such  money  must  be  considered 
as  all  practically  irredeemable,  or  '^  inconvertible,"  as  it  is 
more  commonly  called.  If  government  chooses  to  redeem 
its  notes,  it  can  do  so  ;  if  it  does  not  choose  to  redeem  its 
notes,  it  cannot  be  compelled  to  do  it.  One  month  the 
treasury  may  redeem  in  gold  all  its  own  notes  brought  to 
it  ;  another  month  it  may  refuse  to  redeem  any.  All  the 
time  the  money  is  inconvertible,  because  redemption  is  at 
the  pleasure  of  the  government,  not  a  matter  of  right  on 
the  part  of  the  holder  of  the  notes. 

131.  Is  it  Good  Money  or  Bad  Money? — The  question 
whether  political  money  acts  well  or  ill,  for  tlie  trade  ;mu1  in- 


146  POLITICAL  ECONOMY. 

dnstry  of  the  country,  has  been  much  discnssed,  and  widely 
different  opinions  are  entertained  regarding  it.  It  may, 
however,  fairly  be  said  that  the  most  learned  economists,  the 
soundest  financiers,  the  greatest  statesmen,  in  all  countries, 
are  nearly  unanimous  in  their  opposition  to  it.  I  believe 
that  the  reason  why  many  generally  intelligent  persons 
favor  this  kind  of  money  is  because  they  see  only  a  part  of 
the  case.  Let  us  inquire  what  is  to  be  said  for  and  against 
political  money. 

132.  Is  Political  Money  Cheap  ? — In  the  first  place,  it  is 
alleged  that  political  money  has  the  great  advantage  of  su- 
perior cheapness,  over  either  of  the  two  kinds  of  money 
previously  described.  Let  us  suppose  that  a  country  has 
used  bank-money,  to  the  amount  of  four  hundred  millions 
of  dollars,  the  banks  all  the  while  holding  a  hundred  and 
fifty  millions,  in  coin  or  bullion,  as  a  basis  for  their  circula- 
tion. If,  now,  the  bank-notes  were  all  to  be  withdrawn, 
and  the  government  were  to  issue,  in  their  stead,  four  hun- 
dred millions  of  its  own  notes,  or  bills,  the  hundred  and 
fifty  millions  of  specie  could  be  sent  abroad,  to  other  coun- 
tries, which  still  used  gold  or  silver,  and  one  hundred  and 
fifty  million  dollars'  worth  of  iron  for  railroads,  of  ma- 
chinery for  mills,  of  wool  for  making  cloth,  or  of  silk  goods 
or  wines,  could  be  brought  back.  It  is  a  perfectly  proper  in- 
stinct of  mankind  to  choose  the  shorter  of  two  equally  good 
ways  of  reaching  an  object;  the  cheaper  of  two  equally  good 
instruments  for  doing  a  piece  of  work.  Money  is  nothing 
but  an  instrument  of  exchange;  and,  if  political  money  does 
its  work  as  well  as  any  other  kind  of  money,  and  is  also 
cheaper,  it  is  altogether  to  be  preferred.  On  the  other 
hand,  the  work  which  money  performs,  in  any  state  of  in- 
dustrial society,  is  so  vastly,  so  vitally,  important,  that  no 
money  can  be  said  to  be  really  cheap  which  does  that  work 
poorly.     A  rotten   bridge,  a   leaky  dam,  may  possibly  be 


POLITICAL  ECONOMY.  147 

cheap,  but  bad  money  cannot  be.     Let  us  then  inquire  how 
political  money  does  its  work,  whether  well  or  ill. 

133.  Political  Money  as  the  Medium  of  Exchange. — 
AVe  saw  (par.  91)  that  money  performs  its  great  office,  as  a 
medium  of  exchange, 

1st.  By  dispensing  with  the  double  coincidence  of  wants 
and  of  i^ossessions  which  is  involved  in  barter  ; 

2d.  By  promoting  the  making  of  '^  change"  ; 

3d.  By  acting  as  the  common  denominator  of  values,  for 
all  the  articles  in  the  market. 

All  of  these  things  political  money  can  do  just  as  well 
as  any  other  kind  of  money.  History  abundantly  shows 
that,  if  a  strong  and  well-ordered  government  undertakes  to 
furnish  its  own  people  with  money,  by  issuing  notes  from  • 
its  treasury,  in  amounts  no  greater,  or  not  much  greater, 
than  the  amount  of  gold,  or  silver,  or  bank-notes,  previously 
circulating,  and  if  the  government,  in  so  doing,  makes  its 
notes  (1st)  receivable  for  taxes  or  public  dues,  and  (2d) 
"legal  tender"  for  debts  due  from  one  citizen,  or  subject,  to 
another,  such  notes  will  pass  easily  into  circulation  through- 
out the  community,  without  objection  or  distrust,  and  will 
thereafter  act  as  the  common  medium  of  exchange,  as  a 
matter  of  course.  Every  person,  in  his  place  in  the  indus- 
trial order,  be  that  high  or  low,  will  be  just  as  eager  to 
obtain  these  government  notes  as  he  formerly  was  to  obtain 
bank-notes,  or  gold  and  silver.  No  one  will  resort  to  barter, 
or  curtail  or  modify  his  production  of  wealth,  as  a  means 
of  escaping  the  use  of  such  money.  Such  money,  being 
tlius  used  as  a  general  medium  of  exchange,  becomes,  by 
virtue  of  that  fact  alone,  the  common  denominator  of 
values.  If  three  articles  exchange  severally  for  eight, 
four  and  two  pieces  of  paper,  of  a  certain  color  and  bear- 
ing certain  words  and  figures,  w^e  learn  the  relative  values 
of  these  three  articles  just  as  readily  and  just  as  exactly  as  if 


148  POLITICAL  EOONOMY. 

they  exchanged,  severally,  for  eight,  four  and  two  coins, 
of  a  certain  size  and  bearing  certain  devices. 

134.  Political  Money  as  the  Standard  of  Deferred  Pay- 
ments.— Now,  since  political  money  will  do  all  this,  why  is 
it  not  a  good  money  ?  I  answer,  because,  as  we  saw  in  para- 
graph 103,  the  money  of  a  highly  organized  industrial  state 
has  to  act,  not  only  as  a  medium  of  exchange,  but,  also,  as 
a  standard  for  deferred  payments.  Now,  since  political 
money  is  subject  to  neither  a  natural  nor  a  commercial 
limitation  of  supply,  having  itself  no  cost  of  production,  it 
is  possible,  it  is  always,  socially  speaking,  highly  probable, 
that  the  amount  of  such  money  may  be  made  to  vary  so 
greatly  as  to  make  it  a  very  unsatisfactory  standard.  Those 
variations  of  amount  may  easily  be  carried  to  such  extremes 
as  to  work  the  grossest  injustice,  as  between  debtor  and 
creditor,  and  inflict  the  greatest  injury  upon  production 
and  trade. 

We  have  seen  (par.  105)  that  even  metallic  money  is  sub- 
ject to  considerable  variations  of  amount,  from  age  to  age  ; 
but  here  the  injury  tliat  may  be  done  is  not  of  man's  de- 
vising, and  hence  is  without  that  sting  of  injustice  which 
accompanies  injuries  that  are  done  of  a  purpose.  More- 
over, it  would  be  a  very  extraordinary  condition  of  things 
(although  such  a  condition  of  things  has  existed)  which 
should  allow  the  amount  of  precious  metals  to  be  doubled 
in  twenty-five  years,  or  to  be  diminished  one-half  in  a  hun- 
dred years.  The  amount  of  government  paper-money,  how- 
ever, may  readily  be  doubled  or  quadrupled  in  a  few  months. 
Not  only  is  this  physically  possible,  but  as  much  as  this, 
and  even  a  great  deal  more,  has  actually  occurred.  Con- 
gress, during  our  Eevolutionary  war,  issued  twenty  times 
as  much  money,  of  this  character,  as  there  had  been  of 
metallic  money  (silver)  in  the  Colonies.  The  French 
revolutionary  government,  a  few  years  later,  issued  prob- 


POLITICAL  ECONOMY.  149 

ably  fifty  times  as  much  paper-money  as  there  had  been  of 
metallic  money  in  France,  when  they  began. 

135.  The  Inherent  Tendencies  of  Political  Money. — But 
it  is  not  a  sufficient  reason  for  rejecting  any  instrument, 
which  might  be  of  use  to  society,  that  it  may  conceivably  be 
grossly  abused,  or  even  that  it  has  actually  been  so  abused, 
under  circumstances  not  favorable  to  its  projier  working. 
To  reject  a  social  instrument,  or  agency,  on  sucli  an  account, 
would  be  as  foolish  as  to  accept  it  merely  because  it  might 
conceivably  be  used  to  advantage.  The  question  is,  always, 
of  the  tendencies  of  social  agencies  and  instruments.  Hu- 
man nature  being  what  it  is,  are  they  likely  to  do  more 
harm  than  good  ?  If  they  are,  it  would  be  inexpressibly 
foolish  to  adopt  them,  even  though  it  could  be  sliown  that, 
if  properly  used,  they  might  effect  a  great  saving  of  laboi", 
or  yield  a  great  gain  of  power. 

Now,  regarding  political  money,  it  can,  without  any 
prejudice,  be  said  that  it  is  subject  to  two  evil  tendencies, 
both  of  which  are  very  strong  ;  both  of  which  operate  con- 
tinuously ;  both  of  which  are  liable,  at  special  times,  to 
become  aggravated  to  such  a  degree  that  they  can  scarcely 
be  resisted. 

136.  The  Fiscal  Motive  to  Excessive  Issues. — The  needs 
of  the  public  treasury  constitute  the  most  formidable  of 
the  two  dangers  which  beset  government  paper-money. 
Any  government,  no  matter  how  strong  and  prosperous  the 
people,  is  liable,  now  and  then,  to  find  its  revenues,  even  in 
time  of  peace,  fall  short  of  its  necessary  expenses.  If  a 
government,  in  such  a  strait,  has  already  large  amounts  of 
paper-money  outstanding,  the  pressure  upon  the  treasury, 
or  upon  the  parliament  or  the  congress,  to  increase  those 
issues  of  paper,  to  meet  the  exigency,  will  be  very  strong. 
History  abundantly  shows  the  weakness  of  governments 
under  such  a  temptation,  even  where  solemn  public  prom- 


150  POLITICAL  ECONOMY. 

ises  had  been  given  that  no  such  increase  of  issues  should 
be  made.  Political  virtue  is  seldom  sufficient  to  resist  this 
temptation,  provided  the  government  and  the  people  have 
once  become  accustomed  to  the  idea  of  government  paper- 
money.  Time  is  no  safeguard  in  this  respect.  The  liabil- 
ity to  over-issue  does  not  diminish  with  the  lapse  of  years. 
Moderation  in  the  use  of  such  money  does  not  form  a 
political  habit,  which  becomes  a  security  against  abuse.  On 
the  contrary,  the  more  familiar  a  people  become  with  such 
money,  tlie  less  strenuous  will  be  their  oj)position  to  over- 
ssues.     I  deem  it  perfectly  fair  to  say  this. 

137.  Paper-money  in  War. — But  it  is  on  tlie  occurrence 
of  war,  that  the  greatest  dangers  from  that  source  arise. 
A  government  which  already  has  this  kind  of  money  in 
circulation  is  almost  certain  to  resort  to  its  excessive  and 
destructive  use,  should  .war  break  out.  The  needs  of  the 
treasury,  for  the  means  to  raise  and  equip  armies  and 
navies,  become  at  once  enormously  increased.  It  is  so 
much  more  easy  to  supply  these  needs  by  pouring  out  a 
great  volume  of  paper-money,  in  payment  for  goods  and 
services,  than  to  do  this  by  enhanced  taxation  or  by  govern- 
ment loans,  that  it  would  be  unreasonable  to  expect  the 
government  not  to  resort  to  that  means.  Tlie  moral  courage, 
the  political  wisdom,  which  would  be  required  to  restrain 
rulers  and  legislators  from  such  a  course^  are  seldom  found. 

Yet  the  resort  to  issues  of  paper-money,  at  the  outbreak 
of  war,  is  always  delusive  atid  often  destructive.  The 
reason  is  as  follows  :  The  treasury  issues  the  paper-money 
mainly  for  the  purchase  of  military  stores  and  supplies,  in- 
cluding provisions  and  clothing  for  troops.  Yet  the  prices 
of  these  articles  are  at  once  raised  by  such  issues.  The 
prices  of  all  things  do  not  rise  equally.  When  the  volume 
of  money  is  increased,  houses  and  lands,  perhaps,  do  not 
rise  at  all,  at  the  beginning  ;  but  articles  immediately  mer- 


POLITICAL   ECONOMY.  161 

charitable,  i.e.,  goods  in  shops  and  warehouses,  rise  in 
price  very  rapidly.  Xow,  it  is  these  articles,  especially, 
which  the  government  goes  into  the  market  to  purchase. 
Consequently,  the  treasury,  with  a  larger  nominal  amount 
of  money,  finds  its  purchasing  power  diminished,  and  feels 
itself  poorer  than  ever. 

The  next  step  is  a  fatally  easy  one.  The  poorer  the  gov- 
ernment becomes,  the  more  paper-money  it  emits  ;  the  more 
paper-money  it  emits,  the  poorer  it  becomes.  The  most 
probable  end  is  a  weltering  chaos,  involving  the  utter 
bankruptcy  of  the  treasui-y  and  the  prostration  of  industry 
and  trade,  with  untold  injury  to  the  community,  and  the 
highest  injustice  as  between  man  and  man.  This  was  the 
end  actually  reached  in  the  American  Revolution  and  in  the 
French  Revolution,  during  the  last  century.  In  the  war  of 
Secession,  Congress  had  the  unusual  courage  to  stop,  when 
the  "  greenbacks  "  had  reached  four  hundred  million  dol- 
lars, and  thereafter  to  raise  all  the  means  required,  by 
loans  or  taxes.  Enormous  evils,  however,  had  already  been 
incurred,  and  the  cost  of  the  war  vastly  increased. 

It  is  one  of  the  cowardly  maxims  of  current  politics,  that 
a  great  war  cannot  be  successfully  carried  on,  by  a  free 
people,  without  the  issue  of  government  paper-money,  to 
"make  the  war  popular,"  to  "raise  prices,"  to  "float 
loans,"  etc.  •  Such  a  maxim  is  as  false  as  it  is  cowardly. 
Paper-money  adds  nothing  to  the  real  resources  of  a  nation; 
while  the  political  virtue  of  any  generous  people  will,  if 
properly  appealed  to,  be  found  sufficient  to  command  all 
their  energies  in  any  war  which  is  waged  for  national  inde- 
pendence or  national  honor  or  in  defence  of  important 
rights.  The  effect  of  paper-money  upon  the  public  body 
is  much  like  the  effect  of  alcohol  upon  the  individual :  it 
stimulates,  it  excites,  it  too  often  bewilders  and  crazes;  it 
can  never  add  anything  to  the  strength  available  for  a 


152  POLITICAL  ECONOMY. 

severe  and  protracted  contest.  If  there  is  ever  a  time  when 
a  nation  needs  its  full,  collected,  vigor,  with  a  steady 
pulse,  a  calm  outlook,  a  firm  hand,  a  brain  undisturbed  by 
the  fumes  of  this  alcohol  of  commerce — paper-money — it 
is  when  called  to  do  battle  for  its  life  against  superior 
force. 

138.  Scaling  Down  Debts. — In  all  free  governments,  or 
governments  much  subject  to  popular  impulses,  a  second 
danger  of  over-issue  arises  from  the  appetite  which  is  en- 
gendered for  further  emissions,  to  "scale  down  debts,"  or 
to  "make  trade  good."  After  a  people  have  once  felt  the 
intoxicating  effects  of  excessive  paper-issues,  in  enabling 
them  to  pay  their  debts  in  money  which  is  worth  less,  per- 
haps much  less,  than  that  in  which  the  debts  were  con- 
tracted, there  is  aroused  a  strong  and  urgent  appetite, 
sometimes  a  ferocious  passion,  for  new  emissions,  which 
shall  still  further  reduce  the  value  of  money  and  still  further 
rob  the  creditor  class.  Beneath  the  smooth  and  respect- 
able surface  of  human  society,  in  its  ordinary  moods,  lie 
passions  of  the  most  violent  and  destructive  nature.  It 
is  the  task  of  the  statesman  to  keep  these  from  breaking 
forth  and  devastating  society,  while  he  trusts  to  the  insen- 
sible operation  of  moral  forces  gradually  to  impair  their 
strength  and  ultimately  to  supplant  them  by  virtuous  and 
beneficent  motives.  Scarcely  any  cause  so  breaks-up  the 
restraints  under  which  the  bad  impulses  of  human  nature 
are  held  in  check,  and  lets  loose  upon  society  such  a  horde 
of  villainous  passions,  as  does  the  issue  of  paper-money, 
when  it  has  once  passed  the  bounds  of  prudence. 

Few  communities  known  to  history  possessed  more  of 
sterling  virtue  than  the  early  colonies  of  New  England  ;  yet 
these  people,  once  infatuated  and  intoxicated  by  bad 
money,  fairly  rioted  in  dishonesty,  in  the  treatment  of 
public  and  private  creditors.     It  required  an  immense  effort 


POLITICAL  ECONOMY.  163 

of  public  virtue  to  finally  turn  the  scale  in  favor  of  honesty; 
but  this  was  accomplished,  and,  by  an  act  of  wise  states- 
manship, the  very  roots  of  this  poisonous  plant  were  dug 
out.*  Ever  since  that  time,  the  commercial  credit  and  the 
financial  honor  of  New  England  have  been  nobly  main- 
tained; and  the  reward  has  been  found  in  flourishing  trade 
and  expanding  manufactures.  If  it  is  the  true  task  of 
statesmanship  to  so  order  society,  to  so  dispose  its  forces, 
to  so  organize  its  forms,  as  to  hold  the  bad  impulses  of 
human  nature  in  check,  while  giving  full  scope  and  free 
play  to  those  motives  which  seek  at  once  individual  happi- 
ness and  the  public  welfare,  then  it  ma}^  boldly  be  said 
that  there  is  no  act  so  unstatesmanlike  as  to  institute  the 
regime  of  government  paper-money. 

139.  Political  Money  at  its  Best. — We  have  shown  two 
grave  dangers  which  beset  political  money,  and  from 
which  it  cannot  hope  to  escape.  We  have  seen  that  the 
danger  of  over-issue  never  ceases  to  threaten  such  a  money. 
Its  path  winds  all  the  way  along  the  edge  of  a  precipice. 

Let  us  now  inquire  what  could  be  claimed  for  political 
money,  at  its  best.  Would  it  be  a  good  money,  even  were 
the  danger  of  over-issue,  arising  from  the  two  causes  indi- 
cated, to  be  altogether  removed  ?  I  answer,  such  a  money 
could  never  be  a  good  money,  because  it  has  no  automatic 
regulation  of  its  amount,  to  keep  it  on  a  level,  as  to  value, 
with  the  money  of  other  countries.  It  has  been  said  that 
government  paper-money  lias  no  cost  of  production.  We 
are  now  to  note  that  its  circulation  is  limited  to  the  country 
in  which  it  is  issued.    In  common  phrase,  it  is  non-export- 

*  The  period  of  New  Engliind  history  above  referred  to,  is  com- 
prised between  the  second  disastrous  expedition  against  Canada, 
1710,  and  the  Revolutionary  war.  Massachusetts  rid  itself  of  paper- 
money  in  1747,  under  the  enlightened  leadership  of  Governor 
Hutchinson. 


154  POLITICAL  ECONOMY. 

able.  To  see  the  fall  bearings  of  this  fact,  we  need  to  go 
back  to  metal-money,  and  inquire  how  its  total  volume  is 
distributed  among  the  several  countries  which  take  part 
in  the  commerce  of  the  world. 

140.  The  Geographical  Distribution  of  Metal-money. — It 
would  be  a  very  difficult  question  to  answer,  how  much 
money  a  given  nation  requires.  Even  were  the  amount 
of  its  annual  production  known,  and  the  amount  of  its 
annual  trade,  we  should  not  have  the  means  of  answering 
this  question.  The  amount  of  money  required  to  do  a 
certain  amount  of  trade  depends  upon  the  extent  to  which 
the  banking  system  is  organized  (par.  118);  upon  the 
degree  to  which  cancellation  of  indebtedness  (par.  120)  is 
carried  ;  and  also  upon  the  ''rapidity  of  circulation."  The 
last  point  is  of  great  importance.  In  some  communities,  a 
dollar  will  be  used  to  pay  debts  or  make  purchases,  as 
many  times  in  the  course  of  one  week,  as  in  the  course  of  a 
month  in  other  communities.  ''The  nimble  sixpence 
does  the  work  of  the  slow  shilling."  To  say  that  a  country 
needs  so  much  money  because  it  has  so  much  trade,  would 
be  like  saying  that  a  railroad  needs  so  many  cars  to  trans- 
port ten  millions  of  bushels  of  grain  from  one  place  to 
another,  without  knowing  how  often  the  cars  will  be  able 
to  make  the  round-trip. 

Fortunately,  it  is  not  necessary  that  any  one  should  know 
how  much  metal  money  any  particular  country  requires. 
If  one  country  has  a  larger  share  of  the  metal  money  of  the 
world  than  is  for  its  own  good  and  for  the  good  of  others, 
the  excess  will  be  drained  away  insensibly,  and  without  any 
one  taking  care  concerning  it.  A  country  should,  for  its 
own  good  and  for  the  good  of  others,  have  in  circulation 
money  enough  to  keep  its  prices  on  a  level  (cost  of  trans- 
portation being  taken  into  account)  with  prices  in  other 
countries.     Any  excess  above  this  amount  is  called  Infla- 


POLITICAL  ECONOMY  I5j 

tion.  Now,  if  the  money  of  a  country  be  inflated,  prices 
must  rise.  If  prices  rise,  that  country  becomes  a  bad  coun- 
try to  buy  from,  since  all  persons  naturally  desire  to  buy  in 
the  cheapest  market.  For  the  same  reason,  that  country 
will  be  a  good  country  to  sell  to,  since  all  persons  are  moved 
to  send  their  goods  to  the  dearest  market.  Since,  there- 
fore, the  country  is  both  a  bad  country  to  buy  from  and 
a  good  country  to  sell  to,  its  imports  will  increase  and 
its  exports  diminish.  As  the  immediate  consequence  of 
this,  metal-money  will  have  to  be  sent  out  of  the  country, 
to  pay  the  difference  between  the  value  of  the  goods  it  has 
sold  and  the  value  of  the  goods  it  has  bought. 

This  process  will  begin  even  before  the  shrewdest  banker, 
or  financier,  or  statistician,  could  have  told  that  the  money 
of  that  country  was  in  excess.  You  have  seen  a  carpenter 
or  mason  lay  a  spirit-level  upon  a  beam,  or  upon  a  wall.  If 
the  surface  is  not  exactly  hoiizontal,  the  little  Inibble  under 
the  glass  runs  out  of  sight,  although  the  departure  from  the 
horizontal  be  so  slight  that  no  eye,  however  trained,  could 
detect  it.  So,  in  the  case  of  a  country  having  metallic 
money  in  excess,  the  exportation  of  gold,  or  silver,  begins 
before  the  wisest  man  in  the  land  could  have  told  that  there 
was  inflation.  This  process  continues  just  as  long  as  the 
excess  remains  ;  and  it  ceases,  of  itself,  just  as  soon  as  the 
excess  is  removed. 

It  is  by  such  a  process  that  metal-money  preserves  its  level, 
tlie  world  over.  No  man  has  occasion  to  take  care  for  it. 
There  is  no  need  of  setting  up  machinery  to  do  this  work. 
There  is  no  danger  of  any  mistake  about  it,  either  in 
doing  too  much  or  in  doing  too  little,  either  in  beginning 
too  early  or  too  late.  The  highest  good  of  eatsh  country  re- 
quires that  it  should  liave  just  that  amount  of  money  which 
will  be  brought  to  it,  and  kept  in  it,  by  the  operation  which 
we  have  described.     To  liave  more  money,  would  make 


156  POLITICAL  ECONOMY. 

that  country  a  bad  market  to  buy  in.  To  have  less  money, 
would  retard  and  embarrass  the  exchanges  wliich  the  people 
of  that  country  have  need  to  make.  And  what  is  thus  for 
the  good  of  each  country,  by  turns,  is  for  the  advantage  of 
all  countries,  as  a  whole,  enabling  the  required  exchanges 
to  be  made  with  the  greatest  ease  and  confidence. 

141.  The  Regulation  of  Bank-money. — We  have  shown, 
in  the  preceding  paragi-aph,  that  the  geographical  distribu- 
tion of  metal-money,  among  the  several  countries  of  the 
world,  is  affected  insensibly,  automatically  and  surely.  But 
how  is  it  with  countries  having  bank-money  ?  Can  bank- 
money  be  exported,  in  case  of  excess  ?  I  answer,  no. 
Bank-money  is  not  subject  to  export.  It  is  true  that  a 
few  Bank  of  England  notes  are  occasionally  carried  to  the 
continent  of  Europe.  This,  however,  is  not  because  such 
notes  are  in  excess  at  home;  but  because  a  few  travellers 
choose  to  take  a  portion  of  their  funds  with  them  in  that 
shape,  knowing  that  the  bankers  in  the  largest  cities  of  the 
Continent  are  always  glad  to  have  some  Bank  of  England 
notes  on  hand.  Such  an  exception  we  may  safely  disre- 
gard; and  say  that  bank-notes  are  non-exportable.  How, 
then,  it  will  be  asked,  can  bank-money  be  subject  to  auto- 
matic regulation  of  amount  ? 

The  process  is  as  follows  :  If  bank-notes  be  issued  in  ex- 
cess, prices  will  rise,  and  that  country  will  consequently 
become  a  bad  country  to  buy  from  and  a  good  country  to 
sell  to.  Exports  being,  by  this  cause,  diminished,  while 
imports  are  increased,  money  will  have  to  be  sent  out  of  the 
country,  to  pay  the  balance.  Since  the  bank-notes  cannot 
go,  a  draft  will  be  made  upon  the  specie  in  the  "  reserves" 
of  the  banks.  In  other  words,  there  will  be  a  ''drain'"  of 
gold,  or  silver.  If  the  law,  as  is  sometimes  the  case,  for- 
bids a  bank  to  keep-out  more  than  a  certain  proportion  of 
notes,  or  bills,  to  the  gold,  or  silver,  in  its  vaults,  the  loss 


POLITICAL  ECONOMY.  157 

of  the  specie  will  require  the  banks  to  ''contract  their  cir- 
culation/' accordingly,  and  thus  the  excess  of  notes  will 
be  removed.  If,  on  the  other  hand,  the  law  makes  no  such 
requirement,  the  bank-officers  will  be  obliged,  in  tiie  exer- 
cise of  ordinary  prudence,  not  to  send  back  into  circulation 
the  notes  that  are  first  paid  into  the  bank,  in  the  course  of 
business.  These  notes  the  bank-officers  will  prefer  to  lay 
away  in  their  vaults,  until  the  specie  they  have  lost  shall 
come  back  again. 

Of  course,  it  will  be  seen  that  this  action  requires  the 
exercise  of  ordinary  prudence  on  the  part  of  the  bank-offi- 
cers. If  these  are  reckless,  they  may  wait  until  they  get 
a  second  warning,  in  the  form  of  still  another  "drain" 
upon  their  reserves.  Speaking  broadly,  however,  we  may 
say  that,  if  the  banking  system  of  the  country  is  in  good 
hands,  the  amount  of  bank-money  is  almost  as  surely  and 
quickly  subject  to  I'egulation  as  is  money  of  gold  or  silver. 

142.  Political  Money  not  Subject  to  Automatic  Regula- 
tion of  Amount. — On  the  other  hand,  political  money  is  not 
subject,  in  any  degree,  to  automatic  regulation  of  supply. 
Such  money,  it  is  true,  is  never  likely  to  be  deficient  in 
amount.  The  needs  of  the  treasury  and  the  clamors  of  the 
trading,  and  especially  of  the  speculative,  class,  may  be 
trusted  to  prevent  that  result.  Tiie  danger  is  all  on  the 
other  side,  viz.,  that  such  money  will  be  issued  and  main- 
tained in  excess,  since,  if,  from  any  cause,  at  any  time,  too 
much  of  such  money  be  put  out  from  the  treasury,  there  is 
no  natural  or  commercial  drainage,  by  which  the  excess  shall 
be  removed.  A  country  which  has  such  a  money  is  like  an 
interior  district  which  has  no  outlet  through  the  rivers  and 
thence  to  the  ocean.  If  too  much  water  falls  upon  such  a 
district,  it  turns  to  swamps  or  quicksands,  according  to  the 
nature  of  the  soil.  A  country  where  an  excess  of  govern- 
ment paper-money  has  been  issued  becomes  a  swamp  or  a 


158  POLITICAL  ECONOMY. 

quicksand,  commercially  and  industrially  speaking.  It  be- 
comes at  once  a  bad  country  to  buy  from,  a  good  country  to 
sell  to,  because  prices  are  high  there;  but  this  fact  does  not 
tend  to  remove  the  excess,  because  such  money  is  not  avail- 
able for  export,  to  pay  balances. 

How,  then,  can  such  a  country  pay  the  balances  due  to 
its  unfavorable  trade  ?  Why,  by  gold,  which  it  purchases, 
for  this  purpose,  from  other  nations.  As  soon  as  any 
paper-money  country  is  driven  into  this  strait,  we  have  the 
phenomenon  of  a  Premium  on  Gold.*  This  is  an  almost 
inevitable  accompaniment  of  government  paper-money. 
Since  some  gold  must  be  had,  for  the  purpose  of  paying 
foreign  balances  or  for  use  in  the  arts,  gold,  which  in  that 
country  has  ceased  to  be  money,  is  bought  and  sold,  like 
any  other  commodity  ;  and  its  price  (in  paper-money)  rises 
and  falls  like  the  prices  of  other  commodities.  The  pre- 
mium on  gold  may  be  high  or  it  may  be  low;  but  some 
premium,  greater  or  less,  is  almost  certain  to  exist  wher- 
ever government  paper-money  is  the  sole  money  of  the 
people. 

143.  The  Present  Situation  in  the  United  States. — The 
last  phrase  of  the  preceding  paragraph  intimates  a  qualifi- 
cation that  must  be  made,  whenever  government  paper- 
money  is  spoken  of.  At  the  present  time  we  have,  in  the 
United  States,  government  paper-money,  popularly  known 
as  '' greenbacks."  Why,  then,  is  there  not  a  Premium  on 
Gold?  I  answer,  because  the  amount  of  such  money  lias 
been  fixed  bylaw  at  a  point  far  below  the  amount  of  money 
which  the  people  of  the  United  States  require.  In  addition 
to  the  greenbacks,  we  have 

1st.  Bank  money,  in  large  amount ; 

*  Or  on  silver,  if  that  be  the  money  in  which  foreign  balances  are 
paid,  as,  for  instance,  in  the  East  Indian  or  Chinese  trade.  For  con- 
venience, we  speak,  here,  only  of  gold. 


■      POLITICAL  ECONOMY.  l69 

2d.  Gold  and  silver,  coined  and  uncoined,  in  the  hands 
of  brokers  and  dealers  in  bullion ; 

3d.  "Gold  certificates"  and  ''silver  certificates,"  in  vast 
amount,  Avhich  the  Treasury  has  issued,  and  for  which  it 
holds  the  actual  gold  and  silver,  dollar  for  dollar,  in  the 
*'  sub-treasuries"  at  New  York,  Boston,  Baltimore,  New 
Orleans,  San  Francisco,  and  other  places,  ready  to  be  paid 
out  to  whoever  may  present  the  "  certificates." 

If,  now,  the  aggregate  amount  of  all  these  kiuds  of 
money  should  come,  at  any  time,  to  be  in  excess,  the 
"  drain"  would  come  either  upon  the  gold  and  silver  in  the 
hands  of  brokers  and  bullion  dealers,  or  else  upon  the  gold 
and  silver  held  by  the  government  for  the  redemption  of 
the  *' certificates."  Long  before  the  drain  should  get  down 
to  the  government  paper-money,  any  excess  in  the  aggre- 
gate amount  of  money  within  the  United  States  would  have 
been  corrected. 

What,  then,  it  may  be  asked,  can  be  the  objection  to 
government  issuing  a  certain,  limited,  amount  of  this  politi- 
cal money?  I  answer,  that,  if  the  amount  to  be  so  issued 
is  fixed  far  below  the  lowest  point  to  which  the  money  of 
the  country  could  ever  be  reduced,  even  at  its  lowest  ebb, 
the  only  objection  to  its  issue  is  found  in  the  possible  dan- 
ger that,  when  both  government  and  people  have  become 
thoroughly  accustomed  to  this  kind  of  money,  its  amount 
Avill  readily  be  increased,  in  case  of  financial  disaster  or 
upon  the  occurrence  of  war.  A  country  which  has  such  a 
money  is  very  likely  to  be  drawn  into  the  abuse  of  it.  A 
country  which  has  not  such  a  money  is  not  likely  to  resort 
to  it,  except  in  a  great  exigency. 

144.  Effects  of  a  Gold  Premium  upon  Trade. — Let  us 
now  return  to  the  case  of  a  country,  the  government  of 
which  has  undertaken  to  furnish  its  people  with  all  the 
money  they  require,  in  the  form   of  inconvertible  paper. 


160  POLITICAL  ECONOMY, 

Let  it,  for  the  sake  of  argument,  be  assumed  that  war  will 
not  occur,  to  drive  the  government  to  over-issues  ;  and  that, 
in  time  of  peace,  both  government  and  people  are  so  wise, 
so  honest,  and  so  brave,  that  they  will  not  purposely  inflate 
this  paper-money  under  any  temptation.  Upon  this  series 
of  favorable  assumptions,  what  would  be  the  effect  of  such 
money  upon  trade  ? 

It  has  been  said  that  such  a  money  is  not  likely  to  be  de- 
ficient in  supply.  Both  the  needs  of  the  Treasury  and  the 
demands  of  the  trading,  and  especially  of  the  speculating, 
class,  will  be  certain  to  prevent  this.  But  why  should  such 
a  money  become  excessive,  if  neither  the  government  nor 
the  i^eople  desire  over-issue?  I  answer,  because  there  is 
no  man,  and  no  body  of  men,  wise  enough  to  tell  just  how 
much  money,  no  more  and  no  less,  the  trade  of  a  nation 
requires,  at  any  given  time.  Metal  money  is  in  a  continual 
state  of  flux,  now  flowing  in  this  direction,  now  in  that,  ac- 
cording to  the  needs  of  trade.  One  time,  the  West  requires 
a  larger  share  of  the  nation's  money ;  at  another  time,  it  is 
the  East.  For  weeks,  every  steamer  which  leaves  New 
York  takes  more  or  less  gold  to  Liverpool  ;  then,  again,  it 
is  the  incoming  steamers  which  carry  gold.  It  is  by  the 
incessant  movements  of  money,  that  trade  remains  steady. 
If  money  is  to  become  stagnant,  trade  must  take  up  the 
fluctuation  ;  and,  by  the  inevitable  influence  of  specula- 
tion, that  fluctuation  becomes  excessive,  extravagant,  per- 
nicious. 

If  we  were  to  suppose  that,  upon  any  given  day,  the 
amount  of  inconvertible  paper-money  in  the  country  were 
exactly  what  the  good  of  trade  required,  that  is,  exactly 
the  amount  of  metal-money  which  would  be  in  circu- 
lation, it  would  be,  in  the  highest  degree,  probable  that,  in 
a  very  short  time,  a  few  weeks,  perhaps  a  few  days,  that 
amount  would  become  excessive.     If  it  were  metal-money. 


POLITICAL  ECONOMY.  161 

the  excess  wonld  be  insensibly  and  automatically  drained 
awaVj  as  we  have  seen.  Since  paper-money  cannot  be  regu- 
lated in  tliis  way,  a  premium  on  gold  will  at  once  appear. 
The  niONienf  a  premium  on  gold  appears,  gold  becomes  the 
subject  of  speculative  dealing.  That  speculative  dealing  early 
becomes  intense  and  furious.  The  whole  amount  of  gold 
in  the  country  is  perhaps  sold  over  and  over  again*  during  a 
single  week,  or  a  single  day.  Under  the  influence  of  this 
cause,  the  premium  on  gold  soon  ceases  to  afford  any  meas- 
ure of  the  excess  of  paper-money.  The  premium  goes  up 
and  down,  like  a  small  boat  on  a  tempestuous  sea.  Now 
the  ''bulls" have  it  ;  now  the  " bears. "f 

What  effects  upon  trade  are  produced  by  the  fluctuations 
of  the  gold  premium  ?  We  shall  best  show  tliis  by  illustra- 
tion. A  merchant  in  New  York  sells  goods  to  Liverpool, 
on  sixty  days'  credit.  Those  goods  the  merchant  has 
bought  with  paper-money :  he  is  to  be  paid  in  gold. 
Perhajis  at  the  time  the  sale  takes  place  the  premium  on 
gold  is  twenty  per  cent.  When  the  sixty  days  have  ex- 
pired, the  premium  on  gold  may  be  thirty  per  cent,  or  it 
may  be  only  ten.  In  the  one  case,  the  merchant  has  real- 
ized a  great  gain,  which  he  has  done  nothing  to  deserve;  in 
the  other  case,  he  suffers  a  large  loss,  through  no  fault  of  his 
own.  It  has  already  been  stated  (par.  104)  that  unearned 
gains  do  not  help  men  as  much  as  undeserved  losses  hurt 

*  Not  sold  and  delivered;  but  sold  speculatively,  perhaps  by  men 
who  have  no  gold,  to  men  who  want  no  gold.  Such  buying  and 
selling  is  called  speculative.  Those  who  buy  and  sell  in  this  way, 
being  neither  producers,  traders,  nor  consumers,  are  simply  engaged 
in  gambling.  They  bet  upon  the  future  price  of  the  article  in  which 
they  deal. 

fin  the  phrase  of  the  market,  the  "bulls"  are  those  dealers  who 
are  working  for  a  rise  in  prices,  so  that  they  can  sell  to  advantage  ; 
the  "  bears,"  those  who  are  working  for  a  fall  of  prices,  so  that  they 
can  buy  to  advantage. 


16^  POLITICAL  ECONOMY. 

them.     If  human  history  teaches  anything,  it  teaches  this, 
unmistakably. 

Moreover,  in  such  a  state  of  things,  not  only  is  trade 
subject  to  unearned  gains  and  undeserved  losses,  but  the 
whole  trading  community  becomes  animated  by  a  highly 
speculative  spirit.  Merchants,  instead  of  confining  them- 
selves to  prudent,  careful  dealings,  trying  to  save  a  little 
here,  and  make  a  little  there,  buying  judiciously  and  yell- 
ing judiciously,  remaining  content  with  a  reasonable  profit, 
and  studying  patiently  the  real  demands  of  consumers, 
launch  out  into  enterpi-ises  of  a  grand  and  startling  charac- 
ter ;  become  indifferent  to  little  savings,  contemptuous  of 
small  gains  ;  and  operate  rather  with  reference  to  the  antici- 
pated fluctuations  of  the  gold  premium,  than  with  reference 
to  supplying  the  actual,  current  wants  of  consumers.  Soon, 
''  combines"  and  '^  corners"  come  in  to  produce  great  waves 
in  the  markets  for  produce,  which  swallow  up  the  frail  barks 
of  petty  dealers,  and  wreck  the  small  fortunes  which  have 
been  accumulated  through  years  of  patient  toil.  All  trade, 
is  in  its  nature,  more  or  less  speculative,  even  with  a  good 
money;  but  bad  money  and  a  fluctuating  gold  premium 
make  trade  little  better  than  gambling. 

145.  The  Effects  upon  Industry, — A  nation  might  per- 
haps put  up  with  the  unfavorable  effects  of  paper-money 
upon  the  trading  class,  were  it  not  for  the  inevitable  effects 
which  are  produced  upon  industry.  Manufacturing,  under 
such  impulses  from  trade,  also  becomes  highly  speculative; 
production  gathers  itself  into  great  waves;  producers  become 
dissatisfied  with  the  proper  fruits  of  care  and  pains  and 
labor,  and  fix  their  eyes  upon  the  glittering  prizes  which 
are  awarded  to  lucky  "hits"  and  momentary  successes. 

146.  The  Effects  upon  the  Consumption  of  Wealth. — 
Light  come  :  light  go.  Those  who,  in  such  a  state  of  in- 
dustry and  trade,  reap  large  gains,  too  often  spend  them 


POLITICAL  ECONOMY.  163 

foolishly,  recklessly,  perhaps  wantonly ;  while  those  who 
have  sulfered  from  the  iujustice  which  the  regime  of  paper- 
money  always  causes,  in  so  great  a  degree,  eat  their  scanty 
bread,  made  bitter  by  the  sense  of  wrong  and  undeserved 
hardshiji.  A  period  of  paper-money  inflation  always  sees 
great  changes  in  the  consumption  of  a  people  ;  and  those 
changes  are  almost  all  away  from  what  is  wholesome,  mod 
erate,  and  temperate,  toward  what  is  extravagant,  foolish, 
or  pernicious. 

In  such  a  state  of  industrial  society,  it  is  always  the 
poorest  and  the  humblest,  those  wlio  have  least  to  spare, 
those  who  are  farthest  away  from  the  sources  of  power, 
who  suffer  most,  and  who  have  least  the  opportunity  for 
repairing  the  wrongs  done  to  them.  Eightly  did  Daniel 
AVebster  call  such  money  "the  most  effectual  of  inventions 
to  fertilize  the  rich  man's  field  by  the  sweat  of  the  poor 
man's  brow." 


CHAPTER  XVI. 
PROTECTION  OR  FREE  TRADE. 

147.  The  Territorial  Division  of  Labor. — In  Ohaptei 
V^II,  we  showed  how  the  division  of  labor  comes  about, 
and  indicated  some  of  its  more  important  advantages. 
The  same  priiiciple  which  divides  the  population  of  a  vil- 
lage or  a  small  district  into  hunters  and  herdsmen,  sailors 
and  fishermen,  grain  growers  and  fruit  growers,  carpenters 
and  blacksmiths,  butchers  and  bakers,  peddlers  and  shop- 
keepers, lawyers  and  doctors,  is  carried  out,  in  greater  or 
less  degree,  to  large  districts,  states  and  nations.  Some 
districts,  some  states,  give  themselves  mainly  to  agricul- 
ture, in  one  or  another  branch;  some  resort  chiefly  to  fish- 
ing, shipbuilding  and  navigation  ;  some,  to  mining  and  to 
the  manufacture  of  metals  from  the  ores  ;  some,  to  textile 
manufactures  or  to  the  production  of  pottery  or  porcelain 
from  clays. 

148.  Soil  and  Climate. — There  are  three  principal  sets  of 
forces  in  the  territorial  division  of  labor.     These  are 

(1)  Soil  and  climate. 

(2)  The  industrial  adaptations  of  the  people. 

(3)  The  accumulation  of  capital. 

The  chief  controlling  force  is  found  in  soil  and  cli- 
mate, including  all  those  elements  which  may  be  called 
geographical. 

Soil  and  climate  have  always  a  powerful  influence  upon 
the  occupations  of  any  community,  although  that  influ- 
ence is  much  greater  in  respect  to  certain  classes  of  occu- 

164 


POLITICAL  ECONOMY.  165 

pations  than  in  respect  to  others.  It  is  in  the  mining  in- 
dustries that  the  force  of  this  cause  reaches  its  maximum. 
Nature  here  fixes  the  limits  within  which  alone  industry 
can  be  prosecuted  ;  although  men  may  or  may  not  take 
advautage  of  the  opjiortuuities  offered.  Generally  speak- 
ing, also,  it  may  be  said  that  in  mining  districts  there  is 
seldom  any  considerable  variety  of  occupations.  Neither 
manufactures  nor  agriculture  are  likely  to  grow  up,  on  any 
considerable  scale,  in  connection  with  mining,  on  accoixnt 
of  the  rugged  and  inaccessible,  and  often  sterile,  nature  of 
the  regions  concerned. 

Agriculture  comes  next  to  mining,  in  the  degree  to 
which  the  constraints  of  nature  are  felt.  In  regard  to 
some  crops  the  lines  are  drawn  so  strictly  that  man  has 
little  choice  given  him,  except  only  the  choice  of  not  pro- 
ducing at  all.  In  certain  narrow  disti-icts  along  our  south- 
ern coast,  rice  is  raised,  and  nowhere  else  in  the  United 
States.  This  crop  can  only  be  cultivated  on  lands  which 
are  periodically  flooded  by  water,  either  naturally  or  by 
artificial  means.  The  temperature  of  the  growing  season 
must,  also,  be  high.  In  New  Jersey  and  in  certain  other 
Northern  States,  are  small  districts  which  are  almost  wholly 
given  up  to  the  raising  of  cranberries  for  the  market. 
The  crop  is  a  profitable  one  ;  but  it  can  only  be  raised 
under  peculiar  conditions  as  to  soil  and  water.  There  is 
a  well-defined  honey-producing  district  in  California. 

Hops  are  raised  to  a  great  extent  in  certain  districts  of 
N^ew  York  and  Wisconsin.  Cotton  is  raised  almost  wholly 
south  of  a  certain  parallel  of  latitude,  because  this  plant  re- 
quires both  heat  and  moisture,  in  an  exceptional  degree,  for 
its  cultivation.  Yet  the  human  will  and  the  progress  of  the 
agricultural  art  have  something  to  do  with  determining 
the  seats  of  cotton  cultivation.  Cotton  is  now  largely 
raised  on  high  lands    in   South   Carolina  and   Georgia, 


166  POLITICAL  ECONOMY, 

where,  before  the  War  of  Secession,  no  one  thought  of 
planting  it,  except  in  small  patches.  Tobacco  can  be 
raised  either  at  the  North  or  at  the  South,  in  Connecticut 
as  in  Kentucky,  and  this  plant  has  no  very  clear  relations 
to  the  amount  of  moisture  ;  yet  certain  districts  are  found, 
upon  extensive  trial,  to  be  so  much  better  suited  than 
others  to  the  production  of  a  proper  quality  and  quantity 
of  this  plant,  that  the  tobacco  region  of  the  United  States 
may  be  said  to  be  fairly  well  defined.  Here,  as  in  the  case 
of  hops,  we  have  a  crop  which  fluctuates  greatly  in  price 
from  year  to  year.  Such  a  crop  is  likely  to  be  less  widely 
spread,  for  the  same  quantity  of  product,  than  a  crop  which 
is  steadier  in  price.  Wheat  is  grown  almost  wholly  north 
of  the  thirty-sixth  degree  of  latitude  ;  while  Indian  corn, 
or  maize,  can  be  cultivated  through  a  much  wider  range  of 
country,  giving  the  inhabitants,  therefore,  a  larger  choice 
as  to  the  fields  which  shall  be  sown  for  this  croj). 

When  we  come  to  manufactures  we  reach  a  department  of 
production  where,  it  might  be  supposed,  the  human  will  was 
almost  supreme,  as  regards  the  points  of  location ;  yet,  even 
here,  the  influence  of  geographical  conditions  is  very  strong. 
For  example,  it  is  to  the  remarkable  groups  of  water-powers 
afforded  by  its  rivers,  that  New  England  owes  much  of  its 
development  in  manufactures.  Those  rivers,  falling  down 
from  the  mountains  at  the  north,  make  their  way  to  the  sea 
over  a  succession  of  irregular  terraces.  Whenever  a  stream 
plunges  from  one  terrace  to  another,  it  places  an  enormous 
force  at  the  disposal  of  men,  for  manufacturing  purposes  ; 
and,  inasmuch  as  the  rocks  of  this  region  are  very  hard, 
the  water-fall  is  subject  to  but  little  change  from  age  to 
age.  Sometimes,  the  river  takes  its  last  plunge  straight 
down  into  tide-water,  so  that  vessels  can  load  the  grain  or 
the  lumber  or  the  cotton  cloth  almost  from  the  mills. 

On  the   other  hand,   there  are   extensive  parts  of  the 


POLITICAL  ECONOMY.  167 

Uuited  States  which  are  so  generally  level  that  the  rivers 
flowing  to  the  sea  create  almost  no  water-powers  ;  while, 
even  in  some  elevated  regions,  the  underlying  rock  is  so 
soft  as  to  be  speedily  worn  away  by  the  action  of  the  water, 
producing,  instead  of  a  few  sharp  falls,  a  successioji  of  rap- 
ids and  shoals.  Some  of  these  rivers,  too,  take  their  last 
plunge  at  a  distance  of  one  hundred,  two  hundred  or  even 
three  hundred  miles  from  the  shore,  so  that,  if  mills  were 
to  be  erected  there,  the  vessels  which  were  to  bring  away 
the  produce,  or  carry  up  the  materials,  would  have  a  long 
and  tedious  voyage  to  make. 

Climate,  moreover,  has  not  a  little  to  do  with  success  in 
certain  branches  of  manufactures.  There  are  parts  of 
France  which  are  supposed  to  have  a  great  superiority  in 
the  production  of  silk  goods  of  brilliant  colors  and  delicate 
shades,  by  reason  of  their  prevailing  climate.  Some  dis- 
tricts, as  in  England,  have  just  about  that  degree  of  moist- 
ure in  the  air,  throughout  the  year,  which  is  most  favora- 
ble to  the  spinning  of  cotton.  In  still  other  regions,  the 
highly  electrical  condition  of  the  atmosphere  is  unfavorable 
to  mill-work. 

UiJon  all  out-door  mechanical  employments,  the  com- 
parative severity  or  mildness  of  the  weather  has  a  great  in- 
fluence. In  some  countries^,  a  stone  or  brick  mason  can 
perform  his  task,  with  but  little  interruption,  through  the 
entire  year;  in  other  countries,  the  building  season  is  prac- 
tically limited  to  eight  months  ;  in  others,  to  six  months  or 
even  five. 

While  the  soil  has  little  direct  influence  upon  manufac- 
tures, it  lias  yet  an  important  secondary  influence,  as  pro- 
ducing, or  not  producing,  the  materials  of  manufacture. 
A  region  in  which  cotton  is  grown  has  a  certain  advantage, 
other  things  equal,  in  the  production  of  cottoii  goods.  The 
manufacture  of  porcelain  and  pottery  is  usually  carried  on 


168  POLITICAL  ECONOMY. 

where  the  clays  suitable  for  this  industry  are  found  most 
freely  and  of  the  best  quality.  Ores  are  generally  smelted 
at  or  near  the  mine.  The  existence  of  coal  in  any  districl 
is  an  enormous  aid  to  manufacturing  industry. 

Tlie  foregoing  conditions,  however,  are  subject,  in  a  high 
degree,  to  the  will  of  man  and  to  the  progress  of  the  indus- 
trial arts.  England  imports  cotton  from  America,  from 
Egypt  and  from  India,  and  makes  it  into  cloth  which  she 
sends  back  to  the  very  countries  from  which  the  staple 
came.  In  many  instances,  ores  of  iron  are  carried  hundreds, 
and  ores  of  copper  even  thousands,  of  miles,  to  be  smelted. 
Districts  which  are  destitute  alike  of  natural  water-power 
and  of  coal,  have,  notwithstanding,  achieved  great  success 
in  manufactures. 

149.  Industrial  Adaptations  of  the  People. — Far  less 
conspicuous  to  the  siglit,  but,  in  the  case  of  many  industries, 
of  greater  influence,  are  industrial  adaptations,  either  inher- 
ited or  acquired  by  education.  Strong  as  are  the  con- 
straints of  geographical  conditions,  there  is  that  in  the 
spirit  and  mind  of  man  which  can  make  the  wilderness 
blossom  like  the  rose,  which  can  redeem  a  land  from  the 
sea,  which  can  cut  paths  for  commerce  where  nature  has 
interposed  the  mightiest  barriers,  which  can  build  up  man- 
ufactures in  remote  and  desolate  places.  Some  of  the 
greatest  achievements  of  industry  have  been  made  under 
circumstances  the  most  forbidding  and  with  means  the  most 
inadequate.  Any  land,  however  sterile,  which  possesses 
an  energetic,  skilful  and  enterprising  people,  will,  in  the 
course  of  a  few  generations,  be  richer  than  any  other  coun- 
try, however  bounteously  endowed  by  nature,  whose  people 
are  thriftless,  ignorant  and  inert. 

But  it  is  something  more  than  this  which  we  mean  when 
we  speak  of  the  industrial  adaptations  of  a  nation.  Of  two 
highly   enterprising,  intelligent  and   skilful   peoples,  each 


POLITICAL  ECONOMY.  169 

will  have,  by  reason  of  something  in  its  past,  certain  special 
adaptations,  of  an  industrial  character,  which  the  otlier 
has  not.  One  nation,  like  France,  will  easily  achieve  a 
remarkable  success  in  the  production  of  goods  which  have 
grace  of  form,  beauty  of  color  and  elegance  of  finish. 
Another  nation,  like  England,  will  be  unsurpassed  in  the 
production  of  goods  where  durability  and  substantial  ser- 
vice are  pi-ime  requisites.  Another  nation,  still,  like  the 
United  States,  will  instinctively  turn  itself  to  the  produc- 
tion of  articles  demanding  great  ingenuity,  mechanical 
insight,  and  a  ready  comprehension  of  the  relation  of  parts 
to  a  whole.  The  agricultural  machines,  the  locks  and  safes, 
the  musical  instruments,  the  sewing-machines,  the  rifles 
and  pistols,  the  scales  and  balances,  of  such  a  nation,  will 
be  sent  to  the  ends  of  the  earth.  Some  peoples,  again, 
have,  in  a  high  degree,  the  patience,  the  foresight,  the  care- 
fulness and  the  delight  in  animal  life,  which  give  them  a 
remarkable  success  in  breeding,  raising  and  tending  cattle 
and  sheep,  swine  and  poultry,  and,  consequently,  in  pro- 
ducing those  forms  of  wealth  which  are  derived  from  such 
sources. 

The  industrial  adaptations  of  a  people  sometimes  become 
very  special,  indeed.  Partly  from  inherited  instincts, 
partly  through  secret  processes  handed  down  by  their  fore- 
fathers, the  people  of  a  certain  city  may  have  a  marvellous 
skill  and  taste  in  producing  a  certain,  single  kind  of  goods, 
be  it  sword-blades  that  can  be  bent  double  without  break- 
ing, or  toys  of  infinite  delicacy  and  variety,  or  carpets 
and  shawls  whose  patterns  and  dyes  are  the  admiration  of 
the  world. 

150.  The  Accumulation  of  Capital. — In  addition  to  the 
foregoing  forces,  which  control  or  influeiice  the  distribution 
of  industries,  an  important  force  is  found  in  the  accumu- 
lation of  capital.     Given,  two  peoples  exactly  alike  in  all 


170  POLITICAL  ECOirOMY. 

their  qualities  and  cliaracteristics,  occupying  countries 
similarly  endowed  by  nature,  but  one  of  them  older  in 
settlement,  and  richer  in  accumulated  wealth  than  the 
other,  there  will  inevitably  be  imjjortant  differences  in  the 
avocations  of  those  peoples.  They  will  have  much  in 
common;  there  will  be  much  that  is  peculiar  to  each. 
The  greater  capital  of  the  older  country  will  not  merely 
enable  its  people  to  produce  more  of  the  same  kind  of 
things  ;  it  will  enable  and  almost  require  its  people  to  pro- 
duce things  of  a  diiferent  kind.  There  are  certain  indus- 
tries which  almost  wholly  belong  to  long-settled  countries. 
Moreover,  the 'accumulation  of  capital  tends  strongly  to 
the  local  concentration  of  certain  kinds  of  manufactures. 
The  rule, "  to  him  that  hath  shall  be  given,"  applies  greatly 
to  manufacturing  industry.  There  is  a  curious  tendency, 
in  some  branches  of  business,  for  producers  to  herd  to- 
gether. This  is  even  seen  in  trade.  If  you  go  to  a  large 
city,  you  will  find  the  leather  dealers,  the  wool  merchants, 
the  sellers  of  sewing-machines,  or  musical  instruments, 
close  together.  One  might  suppose  that  the  contrary 
would  be  the  case :  that  a  merchant  would  prefer  not  to 
have  his  competitors  and  rivals  near  him,  and  would  place 
himself  at  a  distance  from  them.  This  is  so,  to  a  large 
extent,  in  retail  trade  ;  but  in  wholesale  trade  the  rule  is 
the  other  way.  So  it  is  with  the  great  manufactures  :  long 
experience  has  shown  that  one  derives  a  benefit  from  tlie 
presence  of  others.  This  is  partly  due  (1)  to  the  fact  that 
individual  manufacturers  can,  in  this  way,  acquire  an  earlier 
and  more  exact  knowledge  of  what  is  going  on  in  their 
lines  of  production ;  in  part,  (2)  to  the  concentration, 
within  a  limited  area,  of  the  laborers  skilled  in  that  kind 
of  work,  so  that  any  manufacturer  can  readily  increase  his 
laboring  force  ;  in  part,  (3)  to  the  fact  that  the  shops  which 
supply  the  materials  for  that  kind  of  manufacture,  and  the 


POLITICAL  ECONOMY.  ill 

works  which  make  its  peculiar  niachiuery,  come  to  be  lo- 
cated near  by  ;  iu  part,  and  perhaps  the  greater  part,  (4) 
to  tlie  fact,  tliat  when  a  region  contains  many  factories  of 
a  certain  kind,  it  comes  to  be  known  as  the  centre,  or  "  head- 
quarters," of  that  manufacture  ;  merchants  and  agents 
visit  it  in  large  numbers  ;  and  the  goods  produced  there 
acquire  a  special  name  and  reputation. 

The  force  of  the  foregoing  cause  is  very  great :  so  much 
so  that,  with  regard  to  certain  manufactures,  it  may  be 
said,  it  is  not  worth  while  for  a  country  or  a  region  to  pro- 
duce at  all,  unless  it  is  to  produce  a  great  deal :  to  have 
any  factories  of  that  sort,  unless  it  is  to  have  many, 

151.  Neighborhood  Industries. — Precisely  the  opposite  is 
true  of  certain  industries  which  we  call  ''neighborhood 
industries."  It  is  of  the  very  nature  of  these,  that  they 
should  be  scattered  widely  over  the  country. 

Among  these  industries  may  be  reckoned  most  of  the 
ordinary  mechanical  trades.  The  carpenter,  the  black- 
smith, the  plumber,  the  house  painter,  the  paperer,  the 
glazier,  the  brick  and  stone  mason,  must  do  their  work  on 
the  spot  where  the  product  is  to  be  used  or  consumed;  and 
these  trades,  taken  together,  comprise  a  large  part  of  the 
mechanical  labor  of  even  the  greatest  industrial  nations. 
There  are  more  carpenters  in  the  United  States  than  per- 
sons engaged  in  the  iron  manufacture,  or  in  the  cotton 
manufacture,  or  in  the  woollen  manufacture.  Again,  the 
building  of  roads,  canals,  and  railroads,  and  largely,  also, 
the  construction  of  bridges,  must  be  performed  on  the 
spot.  A  railroad  cannot  be  built  in  one  country  and  ex- 
ported to  another  for  use.  The  skilled  and  unskilled  labor 
required  for  the  02)eration  of  a  railroad,  has  to  be  employed 
in  tlie  ])lace  where  the  service  is  to  be  enjoyed.  Locomo- 
tives and  cars  nuiy,  indeed,  be  built  at  a  distance;  but  a 
vast  amount  of  repairs  is  constantly  to  be  done  near  to  the 


172  POLITICAL  EGONOMY. 

track  upon  which  the  locomotives  and  cars  are  used. 
There  are,  also,  some  branches  of  manufactures,  proper, 
which  strongly  tend  to  be  scattered  over  the  face  of  the 
country,  such  as  the  making  of  heavy  wagons,  coarse  fur- 
niture, and  plain  brick. 

Such  industries  as  those  we  have  enumerated,  constitute 
an  important  exception  to  the  rule  that  manufacturing  in- 
dustries tend  to  local  concentration.  When,  for  example, 
we  say  that  a  country  or  a  large  region,  possessing  a  rich 
soil  and  favorable  climate,  is  mainly  agricultural,  we  must 
bear  in  mind  that  this  country  or  region  will  still  have,  in 
the  forms  above  mentioned,  a  great  deal  of  mechanical  in- 
dustry. 

And  it  is  also  to  be  noted,  as  a  most  important  considera- 
tion, that,  out  of  these  primitive  mechanical  industries,  the 
higher,  the  finer,  the  more  complicated  branches  of  manu- 
facture tend  to  grow  up,  just  as  fast  as  the  necessary  skill 
and  capital  are  attained.  The  machine  shop  follows 
the  blacksmith's  shop,  in  natural  order;  the  factory  that 
has  been  turning  out  rude  farmers'  and  pioneers'  wagons 
and  carts,  comes,  in  time,  to  make  the  coach  and  the  gen- 
tleman's drag;  shops  which  were  built  only  to  repair  arti- 
cles brought  from  a  distance,  at  last  undertake,  slowly  and 
cautiously,  to  make  those  articles  themselves.  In  these 
and  similar  ways,  the  "neighborhood  industries''  become 
''plantations"  of  the  great  manufactures,  just  as  single 
trees,  set  down  here  and  there  over  a  region,  tend  to  form, 
first,  groups  of  trees,  of  their  own  kind,  then  groves,  then 
forests. 

152.  Advantages  of  the  Territorial  Divison  of  Labor. — 
We  have,  thus  far  in  the  present  chapter,  undertaken  to 
describe,  of  course  very  rudely,  the  process  by  which  the 
territorial  division  of  labor  takes  place.  The  economic 
advantages  resulting  therefrom  are  so  clear  that  they  scarce- 


POLITICAL  ECONOMY.  173 

ly  need  to  be  mentioned.  Each  country,  devoting  its  ener- 
gies to  those  forms  of  production  for  which  it  is  best  fitted, 
alike  by  its  geographical  endowment  and  by  the  skill,  tastes, 
a)Kl  habits  of  its  people,  at  once  does  that  which  is  best  for 
itself  and  best  for  mankind.  The  good  of  each  serves  the 
good  of  all.  While  each  nation  develops  its  industry  along 
the  line  of  its  own  peculiar  powers  and  adaptations,  inter- 
national trade  brings  all  the  nations  together,  in  exchanges 
which  are  mutually  beneficial.  Each,  doing  that  which  it 
can  do  best,  thereby  contributes  in  the  highest  degree  to 
the  welfare  of  others  ;  and  in  its  turn,  thi-ough  a  fair  ex- 
cliange,  receives  back  articles  of  necessity,  of  comfort,  or  of 
luxury,  which  it  could  not  have  produced  except  through 
a  greater,  perhaps  a  vastly  greater,  outlay  of  labor  and 
capital.  Freedom  of  production  within  the  nations,  and 
freedom  of  trade  between  the  nations,  is  the  proper  general 
condition  of  human  industry. 

153.  "The  Encouragement  of  Manufactures." — It  has, 
however,  been  strongly  held,  by  many  persons,  that,  in  a 
new  country,  having  as  yet  but  small  capital,  something 
may  properly  be  done  by  law,  to  encourage  the  growth  of 
manufactures,  instead  of  leaving  this  altogether  to  the 
interest  and  the  "  initiative  "  of  individual  producers.  It 
has  been  held,  that,  by  imposing  "  customs  duties  "  upon 
foreign  articles,  in  certain  lines,  "a  start"  might  be  given 
to  the  production  of  these  articles,  which,  after  a  brief 
term  of  such  ''protection,"  would  be  produced  to  advan- 
tage. It  is  alleged,  in  support  of  this  opinion,  that,  in 
such  a  country  as  has  been  described,  conditions  might,  in 
general,  be  favorable  to  the  production  of  certain  articles, 
and  yet,  on  account  of  timidity  or  want  of  foresight  on 
the  part  of  capitalists  and  manufacturers,  their  production 
might  be  long  delayed;  whereas,  a  little  impulse  from  the 
government,  a  brief  term  of  protection,  might  suflSce  to 


174  POLITICAL  ECONOMY. 

bring  such  industries  into  being  and  to  support  them 
through  the  time  of  trial,  experiment,  and  large,  initial, 
outlay  for  plant  and  machinery. 

Such  an  opinion  is  perfectly  rational.  Capitalists  and 
manufacturers  are  often  timid,  often  mistaken,  often  blind 
to  their  own  true  interests.  It  is  conceivable  that  a  coun- 
try, in  which  capital  was  at  the  best  scarce,*  might  be  on 
the  verge  of  a  successful  career  in  a  certain  line  of  pro- 
duction, and  yet  not  enter  upon  it,  for  the  reasons  indi- 
cated. A  law  which  imposed  duties  upon  articles,  in  this 
line,  might  furnish  the  impulse  needed.  While  many  of 
the  results  of  so-called  protection  are  subject  to  doubt  and 
dispute,  I  believe  that  instances  of  the  successful  applica- 
tion of  this  policy  are  to  be  found  in  our  own  history  and 
in  that  of  other  countries. 

154.  The  Possible  Disadvantages  of  the  Protective  Sys- 
tem.— Against  whatever  advantages  may  be  deemed  likely  to 
result  from  the  successful  introduction  of  certain  branches 
of  manufacture,  at  a  date  earlier  than  that  at  which  they 
would  have  appeared,  but  for  protection,  are  to  be  set  two 
things. 

(«)  The  instances  of  failure.  If  capitalists  and  manu- 
facturers are  fallible,  so  also  are  governors  and  legislators. 
If  capitalists  and  manufacturers  are  selfish,  governors  and 
legislators  are  likely  to  be  moved  strongly  by  sectional  or 
partisan  interests.  The  history  of  protection  abounds  in 
gross  mistakes  and  grave  misadventures,  in  the  attempt 
to  set-up  industries  artificially  by  force  of  law.  The 
silk  duties  in  England  and  the  hemp  duties  in  the. 
United  States  are  striking  examples  of  such  failures.  It 
is,  of  course,  impossible  to  put  into  figures  the  mischief 
done,  whenever  the  policy  of  encouraging  manufactures  is 

*This  is  an  essential  point.  When  capital  is  abundant,  capitalists 
are  almost  too  ready  tc  try  new  things. 


POLITICAL  ECONOMY.  I'^H 

wrongly  applied.  Even  where  the  failure  is  not  total  and 
final,  i.e.,  where  at  last  tiie  industry  becomes  established, 
it  may  still  be  true  that  its  premature  establishment  has 
cost  more,  in  waste  of  labor  and  capital,  than  the  industry 
will  ever  be  worth  to  the  people  of  the  country. 

{b)  The  undue  continuance  of  protective  duties.  Per- 
haps the  greatest  objection  to  the  putting-on  of  protective 
duties  is  the  difficulty  of  taking  them  off.  At  the  outset, 
whenever  protection  is  asked  for  an  "  infant  industry,"  it  is 
invariably  asserted  that  this  will  be  required  for  but  a  short 
time.  Such  has  been  the  theory  upon  which  almost  every  one 
of  the  protected  industries  of  the  United  States  has  been 
started.  As  a  matter  of  fact,  however,  the  time  seldom  comes 
when  those  who  represent  a  protected  industry  are  willing 
to  admit  that  governmental  assistance  is  no  longer  needed. 
Oji  the  contrary,  it  has  been  the  experience  of  the  United 
States,  with  but  few  exceptions,  that  the  protected  indus- 
tries have  from  time  to  time  demanded  higher  and  still 
higher  protection,  and  that  with  increasing  urgency;  while 
against  any  proposed  reduction  of  duties,  all  concerned 
struggle  with  the  utmost  vehemence,  filling  the  public  press 
with  their  outcries,  arousing  sectional  prejudice  and 
passion,  and  producing  apprehensions  and  alarms  which  are 
exceedingly  injurious  to  production  and  trade. 

155.  The  Balance  of  Advantage  and  Disadvantage. — We 
have  seen  what  is  the  possible  advantage  of  a  protective 
policy,  at  its  best,  in  promoting  the  introduction  of  certain 
branches  of  manufacture  into  countries  which  are  ripe  for 
them,  at  an  earlier  date  than  that  at  which  they  would  other- 
wise have  appeared.  AVe  have  noted,  also,  the  possible  dis- 
advantages of  a  protective  system,  first,  through  the  mistakes 
of  legislators  and  governors  in  making  choice  of  the  indus- 
tries to  be  protected;  secondly,  through  the  passionate  re- 
sistance offered  by  the  protected   industries  to  a  removal 


176  POLITICAL  ECONOMY. 

or  reduction  of  duties.  The  question,  on  which  side  the 
balance  of  advantage  and  disadvantage  lies,  is  one  wliicli 
every  citizen  must  decide  for  himself.  It  is  not  a  matter 
for  either  mathematical  or  moral  proof.  One  man  will, 
according  to  his  way  of  thinking,  his  education,  his  busi- 
ness interests,  or  the  section  of  country  in  which  he  lives, 
take  a  very  large  view  of  the  benefits  of  protection,  and 
treat  its  possible  disadvantages  slightingly.  Another  man 
will,  according  to  his  cast  of  mind  and  various  conditions, 
think  it  of  small  importance  whether  certain  branches  of 
industry  come  a  little  earlier  or  a  little  later,  but  deem  it 
an  enormous  evil  that  industries  should  be  forced  into 
being  for  which  a  country  is  not  fitted,  or  that  protective 
duties  should  be  continued  upon  industries  which  have 
passed  the  time  when  they  ought  to  "go  alone." 

The  question  is  one  which,  as  I  have  said,  each  one  must 
decide  for  himself ;  and,  in  doing  so,  it  is  inevitable  that 
he  will  be  profoundly  influenced  by  local  and  personal  con- 
siderations, as  well  as  by  inherited  opinions  and  the  force 
of  education.  If  he  is  a  wool  manufacturer,  he  will  be 
likely  to  think  that  wool  ought  to  be  free,  so  that  he  may 
get  his  material  at  a  low  price.  If  he  is  a  wool  grower,  he 
will  be  likely  to  think  that  foreign  wool  ought  to  be  taxed, 
so  that  he  may  sell  his  crop  at  a  high  price.  If,  on  the 
other  hand,  he  is  a  cotton  planter,  he  will  be  likely  to 
think  that  both  raw  cotton  and  cotton  goods  should  be 
free  of  duty ;  first,  because  most  of  his  crop  is  going  to 
Europe,  anyhow,  and  hence  its  price  will  not  be  affected 
by  any  duties  which  the  United  States  Government  can  im- 
pose *;  secondly,  because  he  and  his  family  and  his  "  hands" 
will  have  to  use  a  great  deal  of  cotton  cloth,  which  he 
naturally  desires  should  be  as  cheap  as  possible. 

*  By  the  Constituliou,  Congress  is  prohibited  from  imposiug  any 
duties  on  exports. 


POLITICAL  ECONOMY.  177 

If  a  man  is  engaged  in  iron  mining,  he  is  likely  to  think 
that  foreign  ore  should  be  heavily  taxed.  The  pig-iron 
manufacturer,  on  the  other  hand,  is  likely  to  think  that 
foreign  ores  should  be  free,  but  that  English,  Scotch,  and 
Swedish  iron  should  be  taxed.  The  manufacturer  of  bar 
iron  and  boiler  plate,  on  the  other  hand,  desires  to  buy  his 
pig-iron  at  the  lowest  price,  no  matter  where  made ;  but 
would  be  glad  to  be  relieved  from  foreign  competition  as 
to  his  own  product. 

The  formation  of  a  tariff  thus  becomes  a  struggle  of  con- 
flicting interests.  How  bitter  that  struggle  may  be,  liow 
disgraceful  the  methods  which  may  be  resorted  to  by  the 
contestants,  how  ready  men  of  good  repute  may  be  to 
sacrifice  general  to  sectional  or  local  interests,  can  only  be 
learned  by  a  careful  study  of  the  tariff  history  of  the 
United  States*  The  American  Congress  is,  alike  by  its 
membership,  its  organization,  and  its  traditional  opinions 
and  sentiments,  peculiarly  ill-fitted  to  deal  with  so  difficult 
and  delicate  a  matter  as  the  decision,  what  industries  shall 
be  protected ;  how  much  protection  each  of  these  shall  re- 
ceive ;  how  long  that  protection  shall  be  continued. 

(rt)  By  its  membership,  because  it  is  composed  of  men, 
chiefly  lawyers,  who  have  had  little  ti-ainiug  in  political 
economy  and  finance,  and,  on  the  other  hand,  know  little, 
practically,  of  industry  and  trade. 

{h)  By  its  organization,  because  its  committees  are  too 
small  in  numbers  and  command  too  little  respect  for  their 
work,  so  that  the  most  carefully  digested  bill,  when  brought 
upon  the  floor  of  the  House,  is  at  once  torn  to  pieces,  in  a 
furious  rush  of  all  the  parties  interested. 

(c)  By  its  traditional  opinions  and  sentiments,  because 

*  The  history  of  the  tiuill  of  1828  is  peculisirly  instructive  in  this 
respect. 


178  POLITICAL  ECONOMY. 

"log-rolling,"*  instead  of  being  considered  a  grave  politi- 
cal crime,  is  too  often  regarded  as  a  proper  legislative 
method  :  many  members  holding  themselves  Justified  in 
voting  for  items  in  which  other  members  are  interested, 
upon  condition  of  receiving  the  votes  of  those  members  for 
the  items  in  which  they  or  their  constituents  are  concerned. 
156.  The  "Pauper  Labor"  Argument  for  Protection. — 
In  addition  to  the  argument  in  favor  of  so-called  protective 
duties,  for  the  promotion  of  manufacturing  industry,  as  a 
temporary  policy,  there  is  known  to  our  political  literature 
an  argument  in  favor  of  a  protective  system,  as  a  perma- 
nent policy,  by  which  a  prosperous  country,  in  which  wages 
are  high  and  in  which  laborers  are  skilful  and  intelligent, 
shall  be  cut  off  from  trade  with  countries  in  which  wages 
are  low  and  in  which  the  body  of  laborers  are  ignorant, 
degraded,  and  spiritless,  with  a  low  standard  of  living  and 
without  industrial  ambitious.  Those  who  advocate  this 
permanent  system  of  protection,  and  support  it  by  what  is 
called  "the  pauper-labor  argument,"  hold,  in  effect,  that, 
in  trade,  a  sort  of  economic  virus  passes  from  the  less  fortu- 
nate to  the  more  fortunate  country,  poisoning  the  indus- 
trial system  of  that  country.  In  this  view,  low  wages  con- 
stitute a  disease  which  is  communicated  through  the  goods 
produced  by  the  laborers  who  receive  such  wages,  just  as 
the  plague  or  the  cholera  is  sometimes  imported  into  Euro- 
pean countries  in  rags  from  Smyrna  or  Alexandria.  This 
"  pauper-labor"  argument  for  protection,  as  a  permanent 
policy,  is  one  which  we  shall  not  be  prepared  to  discuss 
until  we  have  discovered  the  principles  which  govern  the 
distribution  of  wealth,  to  which  we  now  pass. 

*  You  help  me  roll  my  log,  and  I  will  help  you  roll  yours.  There 
are  frequent  instances  of  several  "interests,"  in  a  legislative  bodj; 
uniting  their  forces  and  carrying  through  each  measure  by  turns. 


PART  II. 

DISTRIBUTION  AND   CONSUMPTION. 


CHAPTER  XVII. 
THE  PROBLEM  OP  DISTRIBUTION. 

157.  Distribution  Defined. — We  have  defined  wealth ; 
have  seen  in  what  its  Production  consists  ;  have  considered 
the  natural  conditions  as  to  land,  labor  and  capital,  under 
which  that  production  takes  phice ;  and  have  sought  for 
the  laws  which  govern  the  Exchange  of  the  wealth  thus 
produced.  We  are  now  to  speak  of  the  Distribution  of 
wealth.  This  term  we  must  carefully  define,  because  it  is 
often  subject  to  misapprehension. 

In  private  conversation,  and  even  by  some  intelligent 
writers,  the  distribution  of  wealth  has  been  spoken  of  as  if 
it  were  a  geographical  distribution  :  the  sending  of  com- 
modities, over  land  and  over  sea,  from  producers  to  con- 
sumers. It  is  not  in  this  sense  that  we  use  the  term.  The 
distribution  of  wealth  means  the  division  of  wealth  among 
those  persons  and  classes  of  per- sons  who  have  taTcen  part  in 
its  production.  The  geographical  element  has  nothing  to 
do  with  this.  It  does  not  matter  whether  the  persons 
among  whom  a  body  of  wealth  is  to  be  distributed,  live 
closely  together  or  are  widely  separated.  What  we  inquire 
about,  is  the  nature  of  the  forces,  and  the  mode  of  the 
operation  of  those  forces,  by  which  the  product  is  divided 
among  those  who  have  taken  part  in  its  production. 

158.  Distribution  in  Primitive  Society. — The  complexity 
and  the  difticulty  of  the  problem  of  distribution  vary 
according  to  the  stage  which  industrial  society  has  reached. 
When  four  hunters  go  out   in  company,  thinking  that 

181 


182  POLITICAL  ECONOMY. 

thereby  they  can  best  surround  and  capture  their  game, 
the  question  of  the  division  of  the  spoils  is  an  easy  one. 
Probably  they  agree  to  take  each  a  fourth  share.  If,  how- 
ever, there  is  among  them  one  hunter  so  experienced  and 
so  skilled  that  the  others  kisovv  their  chances  of  great 
game  will  be  vastly  better  by  reason  of  his  being  of  the 
party,  it  is  likely  that  this  man  will  claim,  and  the  others 
will  readily  concede,  a  larger  share.  But  if,  again,  there 
is  of  the  party  one  who  is  young  and  inexperienced,  he 
must  be  content  to  receive  the  small  share  which  the  others 
are  willing  to  allow  him.  In  this  case  there  would  be  three 
grades  of  remuneration  :  a  large  share,  for  the  chief  ;  mod- 
erate shares,  for  the  two  trained  hunters  ;  a  small,  jierhaps 
a  very  small,  share  for  the  novice. 

The  determination  of  these  several  shares  would,  how- 
ever, not  be  a  matter  of  much  difficulty.  Prone  as  men 
are  to  quarrel,  it  is  remarkable  how  readily,  with  how 
little  of  jealousy,  of  friction  or  of  complaint,  working  men, 
of  all  races,  in  all  ages,  in  all  occupations,  have  accepted 
differences  of  remuneration,  based  upon  manifest  differ- 
ences of  strength,  skill,  experience  or  general  intelligence. 
Whatever  difficulties,  whatever  perplexities,  attend  the 
distribution  of  the  product  of  industry,  very  little  of  this  is 
due  to  those  who  furnish  the  labor  power. 

If,  again,  we  were  to  suppose  a  number  of  fishermen  to 
unite  in  a  venture,  we  should  have  the  same  question  raised 
concerning  the  share  of  each,  according  to  the  degree  in 
Avhich  he  deemed  himself,  and  was  by  his  comrades  deemed, 
capable  of  contributing  to  a  successful  result.  We  should, 
moreover,  have  the  additional  difficulty  of  deciding  how 
much  of  the  catch  should  go  to  the  owner  of  the  boat : 
that  is,  the  question  would  arise  as  to  the  amount  to  be 
paid,  as  interest,  for  the  use  of  certain  body  of  capital  (par. 
57).     But,  even  so,  the  problem  of  distribution  would  not 


POLITICAL  ECONOMY.  183 

be  a  very  difficult  one,  in  an  industry  so  primitive  as  fishing 
out  of  a  sea  which  nobody  owns. 

If,  however,  these  fisliermen  were  to  go  into  a  ba}',  wliich 
some  other  person,  not  even  of  their  tribe,  controlled,  the 
question  would  become  not  a  little  complicated.  The 
demand  for  rent,  for  the  right  of  fishing  in  the  bay,  would 
probably  arouse  more  envy  and  anger  than  any  demand 
previously  made.  If  that  demand  could  not  be  resisted,  it 
would  probably  be  sought  to  be  evaded,  in  every  way  pos- 
sible. Perhaps  not  one  of  the  fisherm.en  would  think  of 
stealing  a  boat  from  a  neighbor  at  night,  to  do  the  fishing 
in  ;  while  every  one  of  them,  perhaps,  would  be  ready  to 
go  secretly  into  the  bay,  under  cover  of  darkness,  in  order 
to  escape  the  payment  of  the  required  rent. 

Moreover,  if  there  were  some  great  chief,  at  a  distance, 
who  claimed  a  part  of  the  fish  taken  upon  that  shore,  it  is 
probable  that  all  the  fishermen  would  agree  to  smuggle  the 
fish  back  into  their  huts,  if  they  could  manage  to  do  so, 
without  paying  this  tithe  or  tax.  I  mention  these  last  two 
elements  of  the  case,  because  it  needs  to  be  borne  in  mind, 
not  only  that  the  problem  of  distribution  increases  in  dif- 
ficulty and  perplexity,  as  more  and  more  parties  are  intro- 
duced ;  but  also  that  there  are  certain  shares  respecting 
which  the  great  majority  of  uninstructed  men  entertain 
feelings  very  different  from  those  with  which  they  regard 
other  shares.  "We  have  said  that  there  is  seldom  any  dif- 
ficulty among  the  laboring  class  as  to  the  division,  between 
themselves,  of  the  total  amount  which  is  to  go  to  them  as 
a  body.  There  are,  however,  other  shares  of  the  product, 
regarding  which  a  great  deal  of  prejudice  exists,  and  sonu;- 
tiines  a  great  deal  of  passion  is  uroused. 

159.  Distribution  in  Modern  Industrial  Society. — The 
most  complicated  case  whicli  we  fould  conceive  in  regard 
to   a  primitive  community,   whether  of   fishermen  or   of 


184  POLITICAL  ECONOMY. 

huntsmen  or  of  agriculturists,  would  be  plain  and  simple, 
as  compared  with  those  which  habitually  arise  in  communi- 
ties like  our  own.  Take  the  case  of  a  cotton  factory,  pro- 
ducing, in  a  given  time,  a  million  yards  of  cloth.  Here  we 
have  the  following  claimants  for  shares  of  the  product : 

First,  those  who  furnish  the  labor  power  required  for 
this  j)roduction  ; 

Second,  the  owner  of  the  land  on  which  the  mill  stands ; 

Third,  the  owner  of  the  water  power  ; 

Fourth,  the  owner  of  the  mill ; 

Fifth,  the  owner  of  the  machinery,  of  the  stock  of  ma- 
terials, and  of  the  working  capital  used  in  these  operations  ; 

Sixth,  the  employer,  who  furnishes  the  business  ability  to 
carry  on  production  successfully  ;  who  takes  the  risk  of 
making  nothing  and  the  chance  of  making  much  for  him- 
self ;  who  conducts  the  negotiations  with  the  various  par- 
ties, and  organizes  all  these  persons  and  agents  into  a  pro- 
ductive body ;  with  whom,  finally,  it  rests  to  say,  what 
shall  be  produced  and  how  it  shall  be  produced  ;  of  what 
materials,  in  what  forms  and  styles,  to  what  amount ;  to 
whom,  at  what  prices,  on  what  terms  of  credit,  the  pro- 
duct shall  be  sold. 

It  is  true  that  more  than  one  of  the  parts  enumerated 
above  may  be  found  in  the  same  person.  The  owner  of 
the  mill  may  be  also  the  owner  of  the  water-power;  but  then, 
again,  he  may  not  be.  Very  commonly  the  owners  of  mills 
do  not  own  the  water-power  they  employ  ;  but  lease  it,  at 
a  certain  price,  from  others.  What  determines  that  price  ? 
The  owner  of  the  land  may  also  be  the  owner  of  the  mill; 
but  this  is  not  necessarily  so.  Indeed,  it  is  in  some  coun- 
tries usual  to  erect  buildings  upon  leased  land.  The  em- 
ployer, again,  may  or  may  not  be  the  owner  of  the  mill 
and  the  machinery;  but  even  if  he  be,  the  share  he  re- 
ceives, as  owner  of  the  mill  and  the  machinery,  is  just  as 


POLITICAL  ECOyOMT.  185 

truly  distinct  from  the  share  he  receives  as  employer,  as  it 
would  be  were  these  different  persons. 

We  have  enumerated  six  claimants  upon  the  product 
of  the  mill;  but,  in  fact,  one  of  these  is  not  a  person  but 
a  class,  composed  of  the  most  heterogeneous  subjects,  who 
will  be,  among  themselves,  in  very  different  positions  as  to 
the  claims  they  can  individually  make  and  enforce  for  por- 
tions of  the  cotton  cloth.  There  are  the  superintendent, 
the  overseers  or  foremen,  and  the  clerks  and  cashiers  in 
the  office  of  the  mill,  all  of  whom  are  just  as  truly  laborers 
as  the  spinners  and  weavers  ;  there  are  machinists  and 
highly  skilled  operatives  ;  there  are  porters,  doing  mere 
heavy  work,  and  operatives  of  little  skill  and  experience  ; 
there  are  men  and  there  are  women;  there  are  adults  and 
there  are  children. 

From  the  foregoing  statements,  it  will  appear  that  the 
problem,  how  this  great  web  of  a  million  yards  of  cloth 
shall  be  cut  up  and  distributed  among  these  hundreds  of 
persons,  of  such  different  degrees  of  skill,  strength,  and 
intelligence,  performing  parts  so  various  in  the  general 
work,  is  not  likely  to  be  a  simple  and  easy  one.  Yet  he 
who  would  write  on  the  distribution  of  wealth  must  under- 
take to  show  at  least  the  general  principles  which  govern 
the  remuneration  of  each  one  of  these  hundreds  of  persons, 
in  turn :  how  much  the  employer  shall  receive,  and  wliy 
he  shall  receive  no  more  and  no  less  ;  how  much  the  owner 
of  the  water-power  is  to  receive,  and  Avhy  he  is  to  receive 
no  more  or  no  less ;  how  much  the  owner  of  the  land,  the 
able  bodied  and  skilled  operatives,  the  "heavy  porter,"  the 
woman  spinner,  the  nine-year-old  "half  timer,"  is  each  to 
receive  ;  and  why  that  remuneration  neither  will  nor  can 
be  eitlier  greater  or  smaller. 

160.  Price  as  Affecting  Distribution, — But  we  have  not 
yet  got  to  the  bottom  of  the  difficulties  and  perplexities 


186  POLITICAL  ECONOMY. 

which  attend  the  problem  of  distribution.  We  liave  thus 
far  spoken  as  if  there  were  only  one  factory  producing 
cotton  cloth,  or,  else,  as  if,  of  several  or  many  factories  pro- 
ducing such  goods,  all  were  on  a  perfect  equality  as  regards 
the  conditions  of  production.  But  since  no  two  fac- 
tories are  really  on  an  equality  as  regards  certain  conditions 
of  production,  and  since  any  inequality  in  these  respects 
must,  as  we  shall  show,  importantly  affect  the  distribution 
of  the  product,  it  becomes  necessary  to  introduce  the 
notion  of  price  (par.  95).  Instead,  therefore,  of  supposing 
tlie  great  web  of  cloth  to  be  cut  into  pieces,  corresponding 
to  the  shares  of  the  several  persons  who  have  taken  part 
in  its  production,  we  must  suppose  the  cloth  to  be  sold,  at 
such  a  price  as  shall  be  fixed  by  the  competition  of  other 
factories,  diflEerently  situated  in  some  respects  ;  and  the 
proceeds  of  the  sale  to  be  divided  among  the  claimants. 

161.  Production  at  the  Greatest  Disadvantage. — This 
way  of  approaching  the  question  of  distribution,  viz., 
through  Price,  requires  us  to  review  the  principle  which 
governs  Normal  Price.  In  Chapter  X  we  saw  that  the 
Normal  Price  of  any  kind  of  goods  is  determined  by  the 
cost  of  ''that  last  considerable  portion  of  supply  Avhich  is 
produced  at  the  greatest  disadvantage."  This  principle  is  of 
vital  importance  to  the  theory  of  the  distribution  of  wealth. 
The  reader  should,  at  this  point,  carefully  review  that  chap- 
ter, until  he  is  sure  that  he  holds  its  subject-matter  strongly 
and  clearly  in  his  mind. 

163.  The  Assumption  of  Perfect  Competition. — Through- 
out the  next  few  chapters,  we  shall  speak  of  the  parties,  to 
the  distribution  of  wealth  and  of  their  several  shares,  as  if 
competition  were  perfect.  We  shall  assume  that  every  pro- 
ducer of  wealth,  in  every  capacity,  every  claimant  upon  the 
product,  on  whatever  ground  he  bases  that  claim,  thoroughly 
understands  his   own  true,  permanent,  economic  interest; 


POLITICAL  ECONOMY.  187 

tluit  he  dourly  sees  whatever  is  necessary  to  secure  for  him 
the  largest  ])raeticable  share  of  the  product  to  which  he 
has  contributed  ;  and  that  he  will  not  fail  at  any  point  or 
at  any  time  to  pursue  those  means,  peacefully  and  honestly, 
to  be  sure,  but  also  firmly,  consistently,  and  courageously, 
allowing  nothing  to  turn  him  aside  from  his  purpose. 

Of  course,  this  assuni})tionwill  not  correspond  to  the  facts 
in  any  human  community.  Men  are  always  something  less 
than  perfectly  wise,  perfectly  brave,  perfectly  consistent 
and  true  to  themselves.  They  are,  alas  !  generally  found 
far,  very  far,  below  the  standard  we  have  set  up.  They 
often  mistake  their  interests  ;  they  as  often  neglect  their 
interests,  even  when  they  rightly  discern  them.  ISTotwith- 
standing  this,  it  will  be  profitable  and  expedient  for  us  to 
go  over  the  whole  ground  of  the  distribution  of  wealth, 
upon  the  assumj^tion  which  I  have  made  ;  and  thus  to  see 
what  would  hapj^en  if  all  men  clearly  understood  their  true 
economic  interests  and  unfalteringly  pursued  them.  We 
shall,  then,  in  subsequent  chapters,  inquire  into  the  effects 
of  imperfect  competition  :  who  will  lose  and  who  gain  ;  why 
one  should  lose  and  another  gain,  in  case  men  do,  in  any 
considerable  degree,  fail  to  see  and  to  seek  their  true 
economic  interests. 

163.  The  ^ain  Parties  to  the  Distribution  of  Wealth. — 
In  par.  159  we  saw  that,  in  the  case  of  a  cotton  mill,  there 
were  six  claimants  {persons  or  classes  of  persons),  who 
were  to  receive  shares,  greater  or  smaller,  of  the  mighty 
web  of  cloth,  woven  in  the  mill.  It  is  not,  however, 
necessary  that,  in  proceeding  to  consider  the  general 
principles  regulating  the  distribution  of  wealth,  we  should 
carry  all  these  along  with  us.  The  main  parties  to  the 
distribution  of  wealth  arc  four  in  number. 

Thus,  to  recur  to  the  instance  of  the  cotton-mill,  it  is 
true  that  the  share  received  by  the  owner  of  the  water- 


188  POLITICAL  ECONOMY. 

power,  as  such,  is  distinguishable  in  tlieory,  and  may  also 
be  distinct  in  fact,  from  the  share  received  by  the  owner  of 
the  land  on  which  the  factory  is  built.  Nevertheless,  both 
cases  come  under  a  certain  general  law,  which  we  shall  call 
the  Law  of  Rent;  and,  for  all  the  purposes  of  an  elemen- 
tary treatise,  it  will  suffice  to  show  the  general  law,  leaving 
special  cases  under  it  to  be  worked  out  by  the  scholar,  or 
explained  by  the  teacher. 

In  the  same  way,  the  share  received  by  the  owner  of  the 
mill,  as  such,  is  distinguishable  in  theory,  and  may  be  also 
distinct  in  fact,  from  the  share  received  by  the  owner  of 
the  machinery,  the  materials  and  the  working  capital. 
Different  persons  may  actually  receive  these  two  shares. 
And  yet,  although  the  mill  is  fixed  capital,  and  the  ma- 
chinery and  materials  are  circulating  capital  (par.  63),  one 
general  law,  which  we  call  the  Law  of  Interest,  governs 
both  species.  It  will  answer  all  our  purposes  to  ascertain 
what  this  law  is. 

The  four  main  parties  to  the  distribution  of  wealth  are, 
then,  the  following: 

1.  Tlie  Landlord, — furnishing  land  power,  and  receiv- 
ing Eent. 

2.  The  Employer, — furnishing  business  ability,  and  re- 
ceiving Profits. 

3.  The  Capitalist, — furnishing  capital,  and  receiving 
Interest. 

4.  The  Laborer, — furnishing  labor  power,  and  receiving 
Wages. 


CHAPTEE  XVIII. 
RENT. 

164.  The  Surplus  above  Cost  of  Production. — In  Chap- 
ter X  we  showed  that  ''the  normal  price  of  any  kind  of 
goods  is  determined  by  the  cost  of  that  last  (considerable) 
portion  of  the  necessary  supply  which  is  produced  at  the 
greatest  disad  vantage." 

Further  inquiring  how  there  could  be  any  such  thing  as 
advantage  or  disadvantage,  in  regard  to  diiferent  portions 
of  the  supply,  we  saw  that,  in  regard  to  two  of  the  four  prin- 
cipal agents  of  production,  there  is  not,  necessarily,  any 
such  thing  as  advantage  or, disadvantage  between  different 
portions  of  the  supply;  but  that,  in  regard  to  the  two  remain- 
ing agents,  there  is,  in  the  nature  of  the  case,  certain  to  be 
differences  of  productive  power,  which  will  cause  portions 
of  the  supply  to  be  produced  at  an  advantage,  relatively  to 
other  portions. 

The  two  productive  agents  which  do  not  necessarily  vary 
in  their  efficiency,  as  between  different  portions  of  the  sup- 
ply, are  capital  and  labor  power  (par.  78),  The  two  ele- 
ments which,  in  the  nature  of  the  case,  do  vary  with  differ- 
ent portions  of  the  supply,  are  land  power  and  business 
ability  (pars.  79  and  80). 

We  further  saw  that,  while  different  portions  of  the  sup- 
ply are  produced  at  different,  perhaps  very  different,  costs, 
all  parts  of  the  supply  are  sold  at  the  same  price,  in  the 
same  market.  If  the  price  of  silver  be  a  dollar,  an  ounce, 
tliat  price  is  received  by  the  owner  of  the  mine  at  wliich 

189 


19(J  POLITICAL  ECONOMY. 

silver  is  produced  at  twenty- five  cents,  an  ounce,  just  as  surely 
as  by  the  owner  of  the  mmes  at  which  silver  is  produced  at  a 
dollar.  If  the  price  of  wheat  be  six  shillings,  a  bushel,  the 
farmer  whose  wheat  has  cost  but  three  shillings  receives  the 
full  price.  An  able  and  skilful  manufacturer  does  not  sell 
his  goods  for  what  they  cost  him,  but  at  the  price  which 
has  been  fixed  for  that  kind  of  goods,*  by  the  cost  of  pro- 
ducing them  on  the  part  of  the  least  competent  and  efficient 
manufacturers  contributing  to  the  supply  of  the  market,  in 
this  line. 

It  thus  appears  that,  upon  a  large  part  of  the  wealth  pro- 
duced (upon  all,  indeed,  except  "  that  last  considerable 
portion  of  the  supply  which  is  produced  at  the  greatest  dis- 
advantage"), there  is  a  surplus  above  the  cost  of  produc- 
tion. This  is  a  fact  of  tremendous  consequence  in  the  dis- 
tribution of  wealth.  It  is  the  fact  with  which  we  must 
begin  our  inquiry,  for  we  cannot  with  advantage  take  a 
step  forward,  before  we  have  found  out  to  whom  this  sur- 
plus is  to  go. 

165.  To  Whom  shall  the  Surplus  Go? — We  have  seen 
that,  while  different  portions  of  the  supply  are  produced 
at  different  costs,  all  are  yet  sold  at  the  same  price.  This 
price,  we  have  further  seen,  must  be  high  enough  to  main- 
tain production  in  the  places  and  under  the  conditions 
where  it  is  actually  carried  on  ''  at  the  greatest  disadvan- 
tage."    That   disadvantage,  we   saw,   relates  to  the   land 

*  It  will  be  remembered  that  we  are  here  speaking  of  normal  price. 
Market  price  may,  for  a  time,  by  the  operation  of  supplj'  and  demand, 
fall  below  normal  price;  and  thus  the  less  successful  manufacturers 
may  realize  a  certain  loss  upon  their  goods.  This  state  of  things, 
however,  cannot  continue  indefinitely.  It  is  not  normal;  and  the 
operation  of  the  principle  of  self-interest  tends  steadily  and  strongly 
to  bring  the  market  back  to  the  point  where  the  least  successful  pro- 
ducers will  sell  their  goods  for  the  cost  of  their  production,  but  for 
no  more. 


POLIITGAL  BGONOMT.  191 

|)ower  and  the  business  ability  employed  in  prodaction, 
not  at  all  to  the  labor  power  or  the  capital,  so  employed. 
It  is,  iheti,  tliose  who  oivn  the  more  productive  land  and 
who  possess  the  higher  business  ahility,  who  will  carry  off 
the  entire  siirplus  over  the  cost  of  product  ion.  No  part  of 
this  will  go  to  reward  labor  or  capital.  Labor  and  capital 
will  only  get  what  they  can  produce  "at  the  greatest  dis- 
advantage." All  that  is  produced  in  excess  of  this  will  go 
either  to  the  landlord,  as  rent,  or  to  the  employer,  as  profits. 

We  see,  then,  that  all  the  wealth  produced  annually,  or 
in  any  given  time,  is  divided  into  two  great  parts.  One  of 
these  is  equal  to  that  amount  of  wealth  which  loould  have 
been  produced,  had  all  the  labor  and  the  capital  been  em- 
ployed under  conditions  (as  to  laud  power  and  business 
ability)  as  disadvantageous  as  those  under  which  any  (con- 
siderable) amount  of  labor  and  of  capital  was  actually  em- 
ployed. All  this  wealth  is  divided,  clear,  between  the 
laborer  and  the  capitalist.  The  landlord  and  the  employer 
get  none  of  it;  but  they  do  get  all  of  the  product  which  is 
over  and  above  this. 

Which,  then,  of  these  two  great  parts  of  the  wealth-pro- 
duct shall  we  take  up  first  for  consideration  ?  Shall  we  take 
up  that  part  which  represents  the  cost  of  production  (labor 
and  capital),  or  shall  we  take  up  that  part  which  consists 
of  the  surplus  above  the  cost  of  production  ?  I  answer, 
clearly,  the  latter.  Kent  and  Profits  should  be  treated  be- 
fore Wages  and  Interest.  Many  economists  have,  by  re- 
versing this  order,  fallen  into  serious  confusion,  which  we 
may  hope  to  avoid. 

166.  Rent. — I  have  said  that  the  entire  excess  of  price 
over  cost  is  divided  between  the  landlord  and  the  employer. 
We  shall  first  take  up  the  landlord's  share,  to  which  we 
have  already,  by  anticipation,  applied  the  term  Rent.  For 
the  purpose  of  greater  clearness  and  simplicity,  we  shall, 


192 


POLITICAL  ECONOMY. 


throughout  this  and  the  next  succeeding  chapter,  write  as 
if  there  were  no  profits.  We  shall  see,  when  we  come  to 
Chapter  XIX,  that  there  would  be  no  profits,  were  there  no 
*'  production  at  disadvantage,"  in  respect  to  business  abil- 
ity,* i.e.,  were  all  employers  equally  able  and  comj^etent  to 
conduct  business.  Such  a  state  of  things  we  now,  for  the 
purposes  of  argument,  assume  to  exist,  leaving  it  to  a  later 
period  to  consider  how  profits  actually  arise,  and  by  what 
forces  they  are  limited. 

167.  The  Origin  of  Rent. — To  get  a  fair  start,  let  us  go 
back  to  the  case  which  we  assumed  in  paragraph  81.  We 
there  supposed  that  the  people  of  a  certain  district  or 
country  wanted  enough  wheat,  and  wanted  wheat  badly 
enough,  to  make  up  an  effective  demand  for  a  hundred  and 
thirty  million  bushels,  at  the  price  of  six  shillings,  a  bushel. 
We  further  assumed  that  portions  of  this  supply  were  pro- 
duced at  different  costs,  as  follows,  only  a  part  of  tract 
No.  5  being  cultivated  : 


Tract. 

Amount  pro- 
duced, in  bushels. 

Cost,  per 
bushel. 

Surplus  of 

price  over 

cost,  per 

bushel. 

Surplus  of  price  over 

cost,  for  the  whole 

crop. 

No.  1 
"    2 
"    3 
"    4 
"    5 

10,000,000 
20,000,000 
30,000,000 
40,000,000 
30,000,000 

2  shillings 
3 

t  :; 

6 

4  shillings 

3 

2 

1 

0 

40,000,000  shillings 
60,000,000 
60,000,000 
40,000,000 

130,000,000 

200,000,000  shillings 

Now,  since  the  whole  crop  is  sold  at  six  shillings,  it  will 
bring  780,000,000  sliillings.  How  much  of  this  total 
amount  will  go  to  Eent,  on  the  one  hand;  how  much  to 

*  Indeed,  in  pars.  54  and  55,  it  has  been  stated  that,  in  a  primitive 
condition  of  industrial  society,  there  are  no  profits,  or  at  least  none 
worth  bringing  into  account. 


POLITICAL  ECONOMY.  193 

Labor  and  to  Capital,  on  the  other?  The  answer  is  given 
above.  The  total  surplus  over  cost  of  production,  on  the 
entire  crop,  will  be  two  hundred  million  shillings.  This 
amount,  then,  will  go,  entire,  to  the  owners  of  the  land,  as 
rent.  The  remainder,  five  hundred  and  eighty  million 
shillings,  will  go  to  the  laborers  and  the  capitalists  who 
took  part  in  the  production  of  the  wheat.  How  that 
amonnt  will  be  divided  between  these:  how  much  will  be- 
come Wages,  and  how  much  will  become  Interest,  is  a  ques- 
tion which  we  shall  be  called  to  discuss  in  subsequent 
chapters.  For  the  present,  it  is  sufficient  to  note  that 
the  laborers  and  capitalists  have  a  common  interest  as 
against  the  land-owning  class.  They  can  only  divide  be- 
tween themselves  what  the  latter  do  not  claim  and  receive, 
as  the  surplus  above  cost  of  production. 

168,  The  Margin  of  Cultivation. — To  bring  out  this  last 
point  clearly,  let  us  make  another  series  of  assumptions  re- 
garding the  community  in  question.  We  will  suppose  that 
each  of  the  four  better  kinds  of  land  is  half  as  large  again 
as  we  first  assumed  it,  so  that  fifteen  million  bushels  can 
be  raised  on  the  two-shilling  tract;  thirty  million  bushels 
on  the  three-shilling  tract;  foi'ty-five  million  bushels  on  the 
four-shilling  tract;  sixty  million  bushels  on  the  five-shilling 
tract.  The  four  tracts  taken  together  are,  thus,  capable  of 
producing  one  hundred  and  fifty  million  bushels,  none  of 
it  at  a  cost  above  five  shillings.  We  will,  further,  assume 
that,  at  this  lower  price  for  wheat,  the  community  are  able 
and  glad  to  consume  a  hundred  and  fifty  million  bushels. 
The  entire  crop  will  then  sell  for  seven  hundred  and  fifty 
million  shillings.  The  community  will  have  the  pleasure 
and  the  physiological  benefit  of  consuming  twenty  million 
more  bushels  of  wheat,  while  paying  thirty  million  shillings 
less  for  wheat  than  they  foi-mei-ly  did.  It  is  not  needful  to 
say  that  this  would  be  a  gr(!at  advantage  to  the  community. 


194 


POLITICAL  EC0M0M7. 


But  let  us  see  how  the  account  now  stands  between  the 
hind-owning  class,  on  the  cue  side,  and  the  capitalists  and 
laborers,  on  the  other : 


Tract. 

Amount  pro- 
duced,in  bushels. 

Cost,  per 
bushel. 

Surplus  of 

price  over 

cost,  per 

bushel. 

Surplus  of  cost  over 

price,  for  the  whole 

crop. 

No.  1 
"    2 
"    3 
"    4 

15,000,000 
30,000,000 
45.000,000 
60,000,000 

2  shillings 

3 

4 

5         " 

3  shillings 

2 

1 

0 

45,000,000  shillings 

60,000,000 

45,000,000 

150,000,000 

150,000,000  shillings 

We  see  that,  in  this  case,  the  land-owning  class  will  re- 
ceive but  one  hundred  and  fifty  million  shillings,  as  rent, 
or  just  one-fifth  of  the  price  of  the  crop,  whereas,  formerly, 
they  received  more  than  one-fourth.  Dividing  the  aggre- 
gate rent  by  the  aggregate  crop,  we  find  that  the  landlord 
class  now  receive  only  one  shilling,  rent,  to  each  bushel  of 
the  crop  ;  whereas,  in  the  previous  case  (par.  167),  they 
received  a  shilling  and  a  half. 

To  still  further  illustrate  the  operation  of  this  force,  let 
us  make  a  new  series  of  assumj)tions.  Let  us  suppose  that 
the  several  better  tracts  of  land  are  so  large  that  the  two- 
shilling  tract  can  produce  thirty  million  bushels ;  the  three- 
shilling  tract,  sixty  millions;  the  four-shilling  tract,  ninety 
millions.  The  three  tracts,  taken  together,  then,  will  be 
capable  of  producing  one  hundred  and  eighty  million 
bushels,  none  of  it  at  a  cost  above  four  shillings,  which, 
consequently,  will  become  the  price  of  wheat.  Let  it 
further  be  supposed  that,  at  this  price,  the  members  of  the 
community  are  glad  to  extend  their  consumption  to  one 
hundred  and  eighty  million  bushels,  enjoying,  thus,  both 
the  pleasure  and  the  physiological  benefit  of  being  better 
nourished  than  ever  before,  while  paying  less  for  the  larger 


POLITICAL  ECONOMY. 


195 


than  they  formerly  did  for  the  smaller  amonut.  Let  us 
again  see  how  the  accouut  stands  between  the  land-owning 
class,  on  the  one  hand,  and  the  laborers  and  the  capitalists, 
on  the  other. 


Tract. 

Amount  pro- 
duced, iu 
bushels. 

Cost,  per 
bushel. 

Surplus  of 

price  over  cost, 

per  bushel. 

Surplus  of  price  over 
cost,  for  the  whole  crop. 

No.  1 
"    3 

30,000,000 
60,000,000 
90,000,000 

2  shilliugs 

3 

4 

3  shilliugs 

1 

0 

60,000,000  shillings. 
60,000,000 

180,000,000 

120,000,000  shillings. 

The  reader  sees  that,  in  this  case,  the  land-owning  class 
will  receive,  as  rent,  only  one  hundred  and  twenty  million 
shillings,  which  is  but  one-sixth  the  price  of  the  crop.  Di- 
viding, again,  the  aggregate  rent  by  the  aggregate  crop,  we 
find  that  the  landlord  class  now  receive,  as  rent,  but  two- 
thirds  of  a  shilling  for  each  bushel  of  the  crop,  instead  of  a 
shilling,  as  by  the  last  supposition. 

The  moral  of  this  is  clear,  and  is  of  immense  and  almost 
illimitable  consequence  to  mankind.  Of  course,  the  com- 
munity, as  a  whole,  is  interested  in  having  its  labor  and 
its  capital  applied  to  good  instead  of  to  poor  lands:  there 
is  no  need  to  say  that.  But  we,  also,  see,  from  the  above 
illustrations,  that,  wholly  in  addition  to  their  interest  as 
members  of  the  community,  laborers  and  capitalists  have 
a  special  interest  (opposed  to  the  interest  of  the  land- 
owning class)  in  not  having  the  "  margin  of  cultivation  " 
lowered,  i.e.,  in  not  having  cultivation  forced  down  to 
poorer  soils.  Every  time  the  necessity  of  meeting  the  de- 
mand for  vegetable  or  animal  produce,  for  food  or  for 
clothing,  forces  cultivation  to  descend  to  a  poorer  grade  of 
land,  the  land-owning  class  will  receive^  not  only  a  larger- 


196  POLITICAL  ECONOMY. 

absolute  amount  of  the  j)roduce^  but  also  a  larger  share  of 
the  produce. 

169.  The  Increase  of  Population. — We  see,  then,  at 
what  a  cost  pojiulation  increases,  after  the  j^oint  of  Dimin- 
ishing Returns  has  been  reached.  Not  only  is  there,  as 
we  showed  in  Chapter  V,  a  smaller  proportional  return  to 
cultivation,  but,  of  that  return,  a  diminishing  share  goes  to 
those  who  perform  the  labor  or  furnish  the  cajiital.  As  was 
said  (par.  38),  all  mankind  dwell,  and  must  forever  dwell, 
under  the  shadow  of  this  condition.  If  a  community  is 
led  to  take  up  an  inferior  grade  of  soils  because  its  labor 
power  and  capital  power  have  been  enormously  increased 
by  the  invention  of  machinery  and  the  introduction  of  use- 
ful arts,  the  disadvantage  of  resorting  to  poorer  soils  may 
be  more  than  compensated  by  the  opportunity  to  apply 
that  increased  power  to  some  soils,  even  if  poorer.  But, 
wherever  the  reason  for  a  resort  to  inferior  land  is  found, 
not  in  greater  skill  and  larger  capital  and  improved  arts, 
but  in  the  primary  wants  of  an  ignorant  and  helpless  pop- 
ulation, increasing  in  numbers  without  advancing  in  indus- 
trial power  or  in  social  ambition,  the  results  are  miserable, 
indeed.  A  large  part  of  all  the  wretchedness  of  mankind 
can  clearly  be  traced  to  this  source. 

170.  Transportation. — We  have  thus  far  compared  dif- 
ferent parcels  of  land,  as  to  their  productive  powers,  just 
as  if  they  lay  side  by  side,  equally  near  to  the  market 
where  the  produce  was  to  be  sold.  Of  course,  the  reader 
will  see  for  himself  that,  if  two  tracts  lie  at  unequal  dis- 
tances from  the  market,  the  several  costs  of  transporting 
produce  must  be  taken  into  account,  in  making  out  their 
comparative  costs  of  production.  If  the  price  of  wheat, 
in  a  certain  market,  is  five  shillings,  a  tract  of  land  upon 
which  wheat  can  be  raised  at  a  cost,  upon  the  ground,  of 
two  shillings,  but  which  is  at  such  a  distance  that  the 


POLITICAL  ECONOMY.  197 

transportation  to  the  market  costs  a  shilling,  a  bushel,  will 
bring  a  rent  not  of  three  shillings,  a  bushel,  but  of  two. 
The  cost  of  production  of  that  wheat  is  three  shillings  : 
two  shillings  for  the  labor  and  capital  employed  on  the 
land;  one  shilling  for  the  labor  and  capital  engaged  in 
transportation. 

Wheat  ma}'  be  raised  in  parts  of  Dakota,  at  a  cost  of,  say, 
fifty  cents,  a  bushel ;  but  if  it  costs  fifty  cents  additional  to 
get  that  wheat  to  London,  and  if  wheat  be  selling  there 
at  a  dollar  and  twenty-five  cents,  the  Dakota  land  will  only 
yield  a  I'ent  of  twenty-five  cents,  per  bushel,  although  that 
land  is  just  as  good  as  land  in  Kent  which  pays  seventy- 
five  cents,  a  bushel,  rent. 

During  the  last  ten  or  twenty  years,  there  has  been  a 
marvellous  reduction  in  the  cost  of  transporting  grain  and 
other  agricultural  produce  from  the  United  States  to 
England.  Cheaper  steel  rails  and  more  powerful  locomo- 
tives have  enabled  the  crops  of  the  Great  West  to  be  hauled 
to  the  sea-board  at  a  much  less  expenditure  of  labor  and 
capital  ;  at  the  ports,  steam  "  elevators  "  have  taken  the 
grain  from  the  cars  and  discharged  it  into  the  hold  of  the 
vessels,  at  a  tenth  part  of  the  cost  formerly  involved  in 
handling  the  grain  in  baskets  or  bags ;  while  gigantic 
steamships,  with  "^compound  engines,^' which  carry  the 
grain  across  the  sea  in  ten  or  twelve  days,  have  replaced 
the  small  and  slow  sailing-vessels,  which  in  the  old  days 
did  this  service. 

As  a  consequence,  rents  have  fallen  sharply  in  England 
and  in  Ireland  ;  the  lands  on  which  wheat  was  formerly 
produced  for  the  British  market  "  at  the  greatest  disad- 
vantage" have  been  thrown  out  of  cultivation,  their  place 
being  taken  by  the  wheat-fields  of  Minnesota  and  Dakota. 
This  "raising  of  the  margin  of  cultivation"  has  acted  upon 
British  rents  in  the  way  illustrated  in  par.  1G8.      In  the 


198  POLITIOAL  ECONOMY. 

first  place,  the  British  public  have  had  the  benefit  of  a 
lower  price  for  wheat,  and  hence  of  a  freer  consumption  of 
that  necessary  of  life.  In  the  second  place,  the  British 
labor  and  British  capital  still  applied  to  the  cultivation  of 
British  lands  receive  a  larger  share  of  the  total  product, 
while  the  land-owning  class  receive  a  smaller  share,  than 
formerly. 

171.  Land  Improvements. — In  speaking  of  rent,  the 
political  economist  finds  it  necessary  to  make  a  distinction, 
which  the  reader  must  carefully  observe,  between  that  por- 
tion of  the  yield  of  land  which  is  due  to  the  natural  powers 
of  the  soil,  and  that  portion  which  is  due  to  so-called  im- 
provements. Those  improvements  embrace  everything 
which  is  done  upon  the  land,  or  for  its  benefit,  above  what 
is  involved  in  the  mere  cultivation  of  the  soil  for  the 
annual  crop,  such  as  the  erection  of  barns  and  sheds,  fenc- 
ing, ditching,  clearing  the  ground  of  brush  and  timber,  or 
opening  roads  through  it.  All  such  improvements  consti- 
tute Investments  of  Capital ;  and  the  return  which  is  made 
to  them,  through  increased  crops  or  diminished  cost  of 
production,  is  a  return  to  capital,  and  is,  therefore.  Interest, 
of  which  we  shall  have  to  speak  hereafter.  Eent  only  em- 
braces the  return  which  is  made  to  the  owners  of  land, 
considered  as  unimproved. 

The  foregoing  distinction  is  an  exceedingly  important 
one.  It  is  the  less  likely  to  be  duly  observed  because,  in 
common  speech,  the  whole  return,  on  the  one  account  as 
well  as  on  the  other,  is  called  Rent.  Thus,  I  might  take  a 
lease  of  an  estate,  at  a  rental  of  three  thousand  dollars  a 
year.  Of  that  sum,  two  thousand  dollars  might  really  be 
on  account  of  the  native  powers  of  the  soil,  and  one  thou- 
sand, on  account  of  useful  improvements  upon  it,  either 
enabling  the  land  to  produce  a  greater  crop  with  the  same 
expenditure  of  labor  and  capital,  or  enabling  it  to  produce 


POLITICAL  ECONOMY.  199 

the  same  crop  Avith  a  smaller  expenditure  of  labor  and 
capital.  But,  neither  in  the  written  lease  of  the  estate, 
nor  in  the  talk  of  the  landlord  or  myself  or  my  neighbors 
about  it,  is  this  distinction  observed.  The  whole  three 
thousand  dollars  is  called  rent.  The  political  economist, 
however,  is  bound  to  observe  this  distinction,  since,  as  we 
shall  see,  the  Law  of  Interest  differs  very  widely  from  the 
Law  of  Rent. 

The  proportion,  in  which  what  is  popularly  called  rent 
is  divided  between  real  rent  and  interest,  varies  in  the  case 
of  different  farms,  and  varies,  often  very  widely,  in  the 
case  of  different  regions  or  countries.  A  farm  in  Illinois, 
which  produces,  with  a  certain  application  of  labor  and 
capital,  sixteen  bushels  of  wheat  to  the  acre,  may  be  just 
as  good  land,  naturally,  as  a  farm  in  England  which  pro- 
duces twenty-four  busliels  to  the  acre.  The  farm  in  Illinois 
has  had  comparatively  little  capital  exj^ended  upon  it;  the 
farm  in  England  has  had  a  great  deal  of  capital  expended 
upon  it,  of  which  the  additional  eight  bushels,  per  acre,  is 
the  reward;  and  is,  therefore,  interest. 

In  some  parts  of  the  United  States,  through  considerable 
portions  of  their  history,  very  little  capital  has  been  so  ap- 
plied. Occupiers  have  been  so  eager  to  take  as  much  as 
possible  from  the  land,  each  year,  that  they  have  a23i:>lied 
all  the  labor  and  capital  they  could  command  to  increasing 
the  immediate  crop,  without  doing  anything  for  the  per- 
manent improvement  of  the  soil.  At  the  South,  indeed, 
the  cultivation  of  cotton  and  of  tobacco  was  formerly  pur- 
sued so  eagerly  that  the  lands  declined  in  fertility. 

Generally  speaking,  it  is  impossible  to  say  how  much  of 
the  crop  of  any  field  is  due  to  the  native  properties  of  the 
soil,  and  how  much  to  investments  of  capital.  Most  of  the 
improvements  made  in  agriculture  are  made  little  by  little; 
and  no  account  is  kept  of  them.     Moreover,  many  of  these 


200  POLITICAL  ECONOMY. 

improvements  are  made  in  seasons  of  the  year,  or  in  hours 
of  the  day,  when  the  labor  of  the  farmer  and  his  sons  and 
liis  hands  would  not  otherwise  have  been  employed  at  all; 
and  it  is  difficult  to  say  how  much  that  labor  was  worth. 

172.  The  "Cost"  of  Producing  Farms. — Some  statisti- 
cians and  economists  have  even  undertaken  to  prove  that 
all  the  value  of  even  the  best  land  is  due  entirely  to  im- 
provements, and  not  at  all  to  the  native  properties  of  the 
soil.  These  efforts  have  failed,  first,  because,  as  shown 
above,  it  is  impossible  to  ascertain  what  the  improvements 
made  upon  the  land  have  actually  cost,  and,  secondly,  be- 
cause that  proposition  is  so  cleai-ly  contrary  to  reason.  We 
know  that  some  land,  in  its  native  state,  will  yield  a  hand- 
some crop,  on  its  first  year's  cultivation  ;  while  other  land 
would  not  return  to  its  cultivators  enough  to  keep  them 
alive.  Then,  the  former  lands  must  have  a  higher  value, 
as  compared  with  the  latter. 

We  know,  moreover,  that  some  land  has  a  larger  capability 
of  responding  to  investments  of  capital  than  other  land. 
Very  well,  then,  the  former  land  must  have  a  higher  value, 
as  compared  with  the  latter.  Suppose  two  entire  Counties 
were  to-day  to  be  "discovered,"  in  Illinois  :  would  that 
land  have  no  value  ?  On  the  contrary,  it  Avould  at  once  be 
worth  from  twenty  to  thirty  dollars  an  acre,  although  not 
a  dollar's  worth  of  capital  had  ever  been  applied  to  it. 
The  furious  rush  made  by  tens  of  thousands  of  persons, 
from  every  part  of  the  United  States,  to  Oklahoma,  during 
the  present  year,  when  that  territory  was  first  declared 
"open  to  settlement,"  is  testimony,  that  cannot  be  misun- 
derstood, to  the  fact  that  land,  in  its  native  state,  may 
have  value,  even  a  very  high  value. 

All  through  the  history  of  the  United  States,  men  have 
been  seen  by  thousands,  and  by  hundreds  of  thousands, 
exiling  themselves  from  home  and  takiug  up  their  march 


POLITICAL  ECONOMY.  201 

across  the  continent,  to  occupy  new  lands  at  the  West.  If 
the  value  of  land  is  entirely  due  to  improvements,  why  was 
not  all  this  labor  and  capital  expended  upon  the  lands  at 
home,  near  to  the  seats  of  manufacture,  and  upon  the 
rivers  which  flow  to  the  Atlantic  ?  That  it  was  not,  but 
that,  on  the  contrary,  large  tracts  of  land  were  here  left 
altogether  uncultivated,  while  population  poured  westward, 
over  ten,  twenty  and  thirty  degrees  of  longitude,  is  evi- 
dence, which  surely  no  one  ought  to  mistake,  that  lands,  as 
they  are  found  in  a  state  of  nature,  differ  widely  as  to  their 
immediate  productiveness,  and  widely,  also,  as  to  their 
capability  of  responding  to  improvements. 

173.  The  No-Rent  Lands. — It  will  have  been  observed 
that,  in  speaking  of  the  origin  of  rent,  in  par.  167,  we  as- 
sumed that  the  lowest  grade  of  lands  under  cultivation,  at 
any  given  time,  pay  no  rent.  This  is  a  point  on  which  the 
reader  should  fix  his  attention.  The  whole  theory  of  Eent 
depends  upon  the  existence  of  No-Eent  lands.  Of  course, 
in  speaking  of  certain  lands  as  bearing  no-rent,  we  mean, 
either,  literally  no  rent  at  all,  or  else  a  rent  so  small  that, 
with  reference  to  the  magnitude  of  the  other  interests 
involved,  it  may  properly,  in  economic  reasoning,  be  called 
no  rent.*  One  of  the  first  lessons  which  the  social  or  the 
economic  philosopher  has  to  learn  is  that  there  is  a  point 
beyond  which  he  must  cease  to  regard  an  element  or  a  fac- 
tor. Even  the  mathematician  carries  his  computations  out 
only  to  a  certain  decimal  place. 

*  Until  recently,  any  citizen  of  the  United  States  could,  by  law, 
freely  take  up  excellent  land,  of  a  high  degree  of  fertility,  at  the 
government  price  of  $1.25  per  acre.  Now,  the  interest  ui)onthc  pur- 
chase-price of  this  land,  would,  at  seven  per  cent,  be  nine  cents,  an 
acre,  per  year.  Yet,  in  raising  a  crop  from  the  land,  from  eight  to 
twelve  dollars'  worth  of  labor  and  capital  would  be  applied  to  each 
acre.  Clearly,  where  rent  falls  to  one  per  cent  upon  the  cost  of 
cultivation,  we  may  speak  of  it  as  no-rent. 


202  POLITICAL  ECONOMY. 

Even  were  it  true  that  no  piece  of  land  was  ever  cul- 
tivated without  paying  some  rent,  in  some  degree,  however 
small,  this  would  not  in  the  least  affect  the  validity  of  our 
principle.  Whenever  the  rent  of  land  becomes  so  small 
that  it  is  less  than  the  value  of  the  hay  or  the  grain  which 
the  farmer  leaves  upon  the  field,  neglecting  to  glean  it,  this 
may  certainly  be  called  no  rent,  for  all  the  purposes  of 
economic  reasoning  ;  and  rent  no  larger  than  this  is  paid, 
to-day,  for  large  bodies  of  grazing  and  even  of  cultivated 
land. 

174.  The  Law  of  Rent. — We  are  now  in  a  position  to 
formulate  the  law  of  Rent.  We  have  seen  what  is  the 
origin  of  Eent.  Rent  arises  out  of  the  differences  which 
exist  in  the  productiveness  of  the  different  soils  which  are 
under  cultivation,  at  the  same  time,  for  the  supply  of  the 
same  market. 

Such  is  the  origin  of  Rent.  What  is  the  measure  of 
Rent?  I  answer,  the  amount  of  Rent  is  determined  by  the 
degree  of  the  differences  which  has  just  been  referred  to. 
The  normal  rent  of  any  piece  of  land  is  fixed  by  the  dif- 
ference between  its  annual  yield  and  that  of  the  least 
productive  land  actually  cultivated  for  the  supply  of  the 
same  market.  To  recur  to  the  illustration  previously 
given,  if  the  six-shilling  land  is  on  "the  margin  of  cultiva- 
tion," and  thus,  itself,  bears  no  rent,  the  two-shilling  land 
will  bear  rent  of  four  shillings,  per  bushel.  Any  man  may 
just  as  well  pay  such  a  rent  for  the  privilege  of  cultivating 
this  land,  as  cultivate  a  tract  of  the  six-shilling  land,  for 
nothing.  But  if  the  margin  of  cultivation  should  rise,  so 
that  the  five-shilling  land  should  be  the  poorest  cultivated, 
tlien  the  rent  of  the  two-shilling  land  would  sink  to  three 
shillings,  a  bushel.  In  every  case,  rents  are  measured  up- 
wards from  the  no-rent  line. 


Political  economy.  203 

175.  Rent  Does  Not  Form  a  Part  of  the  Price  of  Agri- 
cultural Produce. — From  the  principles  we  have  already 
established,  we  are  able  to  deduce  a  conclusion  which  may, 
at  first,  be  startling  to  the  reader,  viz.,  that  rent  forms  no 
part  of  the  price  of  agricultural  produce.  This  surely  is  a 
''  hard  saying  ;"  but  it  can  be  demonstrated  as  stiictly  as 
any  theorem  in  geometry.  We  know  that  rent  forms  no 
part  of  the  price  of  agricultural  produce  because  that  price 
is  determined  by  the  cost  of  raising  it  upon  lands  which 
pay  no  rent.  How,  then,  can  rent  be  an  element  in  that 
price?  If  the  price  of  wheat  is  six  shillings,  this  is  because, 
in  order  to  raise  the  required  amount  of  wheat,  cultivation 
has  to  be  carried  down  to  the  six-shilliug  land.  In  a  word^ 
tlie  price  of  prochice  isnot  high  hecause  rent  is  paid ;  but 
rent  is  paid  because  the  price  of  produce  is  liigh.  If  there 
were  enough  of  the  two-shilling  laud  to  raise  all  the  wheat 
required,  and  more,  the  price  of  wheat  would  then  be  two 
shillings,  and  no  wheat-land  would  pay  any  rent. 

176.  Rent  Is  Not  Obtained  by  Deduction  from  Wages. — 
We  are  now  to  announce  another  proposition,  which  may 
prove  not  less  startling  than  the  last.  It  is  that  rent  is  not 
obtained  by  deduction  from  wages.  If  wages  are  low,  this 
is  not  because  rents  are  paid  for  the  better  lands,  but 
because  the  cultivators  of  the  poorer  lands  can  pay  no  more 
wages  with  any  hope  of  getting  them  back  in  the  price  of 
their  produce. 

Only  a  certain  amount  of  labor  could  be  profitably  em- 
ployed on  the  two-shilling  land.  This  would  leave  a  large 
amount  of  labor  unemployed.  Even  the  added  cultivation 
of  the  three-shilling  land  would  not  take  up  all  the  labor 
''in  the  market."'  It  will,  perhaps,  not  be  until  the  four- 
shilling,  the  five-shilling,  and  the  six-shilling  land  have  all 
been  brought  under  cultivation,  that  the  entire  amount  of 
labor  will  find  employment.     Now,  the  last  tract  of  land 


204  POLITICAL  ECONOMY. 

being  as  poor  as  it  is,  and  the  price  of  wheat  being  only  six 
shillings,  the  cultivator  of  that  tract  can  only  pay  a  certain 
rate  of  wages.  Were  lie  to  undertake  to  pay  more,  he 
could  not  get  it  back  in  the  price  of  his  produce  ;  and 
would,  therefore,  soon  be  obliged  to  suspend  production. 

The  rate  of  wages  being  thus  fixed  by  the  capabilities  of 
the  six-shilling  land,  this  rate  will  be  paid  for  labor  on  all 
the  higher  grades  of  land.  There  will  be  no  economic 
force  to  compel  the  cultivators  of  the  better  lands  to  pay 
higher  wages;  nor  would  it  do  any  good  to  the  laborers, 
were  they  to  undertake  to  do  so.  For,  in  that  case,  the 
laborers  would  abandon  the  poorer  lands  and  all  rush  to 
get  employment  on  the  better  lands.  Since,  however,  these 
lands  could  only  profitably  employ  a  certain  amount  of 
labor,  this  would  leave  a  portion  of  the  laborers  unemployed, 
and  a  portion  of  the  fields  actually  required  for  supplying 
the  community  with  wheat,  uncultivated. 


OHAPTEE  XIX. 
RENT,  CONTINUED.     THE  OWNERSHIP  OP  LAND. 

177.  The  Tenure  of  Land. — We  have  now,  so  far  as 
seems  practicable  iu  au  elementary  treatise,  laid  down  the 
general  principles  which  govern  the  rent  of  land.  We 
have  seen  where  rent  originates,  and  what  is  its  measure, 
or  limit.  We  have  seen  that,  by  the  operation  of  purely 
economic  forces,  all  the  excess  of  price  over  cost  must  go 
to  the  owner  of  the  land. 

But,  it  may  be  asked,  wlio  is  this  oioner  of  the  land'?  and 
why  should  he  be  in  a  position  to  demand  and  obtain  this 
large  share  of  the  annual  produce  of  industry  ?  Why 
should  not  some  one  else  have  the  whole  or  a  part  of  the 
wealth  thus  ajDpropriated  ?  These  are  questions  which  it 
is  perfectly  fair  to  ask ;  which  many  people,  in  many 
countries,  are  now  asking  with  great  earnestness. 

178.  How  about  the  Consumer  of  Agricultural  Produce  ? 
— In  the  first  place,  as  a  step  towards  answering  these 
questions,  let  us  ask  what  other  person  or  persons  could 
reasonably  make  claim  to  that  portion  of  the  produce 
which  the  laud-owner  i-eceives,  as  rent  ?  Is  it  the  con- 
sumer of  agricultural  produce  ?  Does  he  suffer  any  wrong 
by  the  present  system  ?  Nay,  would  it  even  be  possible  to 
confer  any  benefit  upon  him  by  a  change  of  system  ? 

Of  course,  the  consumer  desires  to  obtain  his  produce  at 
the  lowest  price  possible.  Of  course,  it  would  be  better  for 
him  if  the  price  were  lower  than  it  is.  But  we  have  seen 
that  the  price  of  produce  is  not  higher  by  reason  of  rent 

205 


206  POLITICAL  SGONOMT. 

being  paid.  The  price  of  wheat  is  what  it  is  because  the 
cost  of  producing  wheat  on  the  poorest  hinds  under  cultiva- 
tion is  what  it  is.  Somebody  has  got  to  eat  the  wheat 
grown  on  the  six-shilling  land  ;  and  consequently  has  got 
to  pay  six  shillings  for  it.  Who  is  the  man  that  has  the 
right,  in  preference  to  all  others,  to  eat  the  wheat  grown 
on  the  two-shilling  land  and  pay  only  two  shillings  for  it  ? 
What  gives  him  that  right  ?  How  is  he  any  better  than 
the  men  who  are  to  eat  the  wheat  grown  on  the  poorer 
lands  and  are  to  pay  the  cost  of  raising  it  ? 

No  !  Not  the  faintest  claim  can  be  set  up,  on  behalf  of 
the  consumers  of  agricultural  produce,  that  they  should 
receive  any  part  of  that  which  now  goes  to  the  landlord,  as 
rent.  It  is  perfectly  right  and  just  that  what  one  man  pays 
in  the  market  for  wheat,  every  other  man  should  pay. 

179.  How  about  the  Agricultural  Laborer? — Is  it  the 
laborer,  who  can  put  forward  a  claim  to  this  share  of 
the  produce  ?  I  answer,  no.  The  laborer  who  works 
upon  the  six-shilling  land,  which  pays  no  rent,  is  Just 
as  deserving  as  the  laborer  who  works  upon  the  two- 
shilling  land,  and  is  entitled  to  just  as  high  remuneration. 
To  allow  the  laborers  upon  the  better  grades  of  land  to 
divide  among  themselves  the  whole  or  any  part  of  that 
which  the  land-owners  receive,  as  rent,  would  be  the 
grossest  injustice.  We  have  already  seen  that  it  would  be 
socially  impracticable,  since  such  a  scheme  would  lead  to  a 
mad  rush  of  all  the  laborers  to  the  best  lands ;  to  the 
abandonment  of  tracts  required  to  supply  the  community 
with  food;  to  turmoil,  violence  and  bloodshed,  in  the 
struggle  for  employment  upon  the  highest  grade  of  land, 
upon  which,  alone,  any  laborer  would  consent  to  work. 

180.  How  about  the  Capitalist  ?— We  have,  remaining, 
only  one  person,  or  class  of  persons,  whom  we  can  conceive 
as  making  a  demand  for  rent,  or  for  any  part  of  it.     This 


POLITICAL  ECONOMY.  S07 

is  the  capitalist.  Could  he  reasonably  put  forward  such 
a  claim  ?  I  answer,  such  a  claim  would  be  just  as 
sound  on  his  part  as  on  the  part  of  the  laborer,  and  no 
more.  The  capitalist  who  lends  horses  and  carts  and  im- 
plements and  food  and  clothing,  to  be  used  in  the  cul- 
tivation of  the  two-shilling  tract,  is  entitled  to  no  higher 
remuneration  than  the  capitalist  who  lends  similar  things 
to  be  used  in  the  cultivation  of  the  six-shilling  tract.  Jus- 
tice, as  between  capitalist  and  capitalist,  will  only  be  real- 
ized when  each  receives  for  an  equal  service  an  equal  re- 
turn. 

181.  How  about  the  Community? — I  have  said  that 
there  is  no  other  person,  or  class  of  persons,  regarding 
whom  we  could  raise  a  question  in  this  connection. 
Is,  then,  the  right  of  the  land-owner,  to  receive  rent, 
beyond  any  challenge  ?  I  answer,  no.  While  no  person 
and  no  class  of  persons,  other  than  the  land-owner,  can 
put  forward  a  reasonable  claim  to  rent,  or  to  any  part  of 
it,  there  is,  yet,  a  claim  to  bo  considered.  It  is  the  claim 
of  THE  COMMUNITY,  to  whicli  the  land-owner  belongs,  to 
which  the  laborer  belongs,  to  which  the  capitalist  belongs, 
and  in  which  they  all  have  rights  and  interests. 

182.  The  Nationalization  of  the  Land. — The  claim  that 
the  community,  or  the  State,  should  receive  all  the  excess 
of  price  above  cost,  has  been  put  forward,  at  various  times, 
without  attracting  much  public  interest.  Within  the  last 
ten  years,  however,  this  claim  has  again  been  put  forward, 
and  has,  this  time,  been  urged  with  so  much  enthusiasm 
and  eloquence  as  to  attract  public  attention  very  widely 
and  to  arouse  an  intense  interest  in  many  minds.  The 
agitation  of  the  subject  is  not  unlikely  to  proceed  even 
further ;  and  those  who  are  now  in  school  will  probably  be 
called  upon  to  express  tlieir  views  and  to  take  their  posi- 
tions,   as   members  of   the   public   body,    with    reference 


208  POLITICAL  ECONOMY. 

thereto.  I,  therefore,  proceed  to  speak  of  the  project  to 
which  the  term,  Nationalization  of  the  Land,  is  applied. 

There  can  be  no  question,  I  think,  that  if ^.the  community 
chooses  to  claim  rent,  it  has  a  clear  and  a  full  right  to  it. 
Of  course,  when  I  speak  of  rent,  in  this  way,  I  mean  true 
economic  rent.  That  part  of  rent,  popularly  so  called, 
which  is  due  to  improvements  made  in  the  land  (par.  170), 
is  not  embraced  in  the  foregoing  statement.  Moreover, 
the  statement  made  above  assumes  that  the  community,  or 
State,  will  respect  and  save  all  those  rights  which  have  been 
vested  in  individuals  by  its  own  acts  and  laws.  No  matter 
how  strong  the  claim  of  the  State  upon  rent  may  be  deemed 
to  be,  if  the  State  has  allowed  and  encouraged  me  to  pur- 
chase with  my  own  earnings  a  piece  of  land,  in  tlie  reason- 
able exj)ectation  and  the  then  legal  assurance  that  I  am  to 
receive  the  rent  of  that  land,  tlie  State  becomes  simj^ly  a 
robber,  neither  more  nor  less,  if  it  proceeds  to  take  that 
land  away  from  me,  or  to  take  from  me  the  right  to  receive 
its  full  proper  rental,  without  comjoensation.*  The  State 
has  the  right,  however,  at  any  time  to  give  public  notice 
that  thereafter  it  will  claim  and  collect  for  itself  all  future 
increase  in  the  rental  or  the  selling  price  of  all  lands  within 
its  Jurisdiction. 

183.  The  Equities  of  Rent. — Subject  to  the  foregoing 

*  It  is  greatly  to  be  regretted  that  just  that  which  iu  the  text 
is  denounced,  iu  terms  which  I  have  not  been  careful  to  meas 
ure,  is  proposed  by  Mr.  Henry  George,  in  his  famous  worlv, 
"Progress  and  Poverty,"  and  in  his  subsequent  writings  and  ad- 
dresses. Mr.  George  distinctly  repudiates  the  idea  of  giving  com- 
pensation to  the  owners  of  land  which  the  State  may  take  away 
from  them,  notwithstanding  that  they  have  acquired  their  properties 
under  the  sanction  and  encouragement  of  the  State,  itself,  and  even 
though  the  State  itself  may  have  sold  the  land  and  put  its  price 
into  the  treasury.  Such  a  proposition  is  simply  infamous,  and  does 
not  deserve  discussion  by  any  honest  person. 


POLITICAL  ECONOMY.  209 

qualifications,  viz.,  (1st)  tliat  the  right  of  the  owner  of  the 
land  to  the  full  value  of  hisJ  "  improvements  "  be  recognized, 
and  (2d)  that  compensation  be  given  for  the  full  value  of 
the  land,  at  tlie  time  the  system  of  land  ntitionalizatiou 
should  go  into  effect,  there  could  be  no  objection,  on  the 
ground  of  public  justice,  to  the  adoption  of  such  a  system. 
It  certainly  is  true,  as  claimed  by  the  advocates  of  tliis 
policy,  that  any  increase  in  the  rental  value  or  selling  value 
of  laud  (aside  from  investments  of  capital,  already  spoken 
of),  is  due,  not  to  the  exertions  and  sacrifices  of  the  owners 
of  the  land,  but  to  the  exertions  and  sacrifices  of  the  com- 
munity. It  is  certainly  true,  as  claimed  by  the  advocates 
of  land  nationalization,  that  economic  rent  tends  to  increase 
with  the  growth  of  wealth  and  population;  and  that,  thus, 
a  larger  and  still  larger  share  of  tlie  product  of  industry 
tends  to  pass  into  the  hands  of  the  owners  of  land,  not  be- 
cause they  have  done  more  for  society,  but  because  society 
has  a  greater  need  of  that  which  they  control. 

184.  The  Primitive  Tenure  of  the  Land. — It  has  only 
been  of  late  years  that  the  careful  and  painstaking  scholars 
of  Germany,  aided  by  two  or  three  eminent  historical 
students  in  England,  have  been  able  at  last  to  uncover 
enough  of  the  old  "metes  and  bounds"  to  show  how  the 
soil  was  divided,  and  how  it  was  cultivated,  in  most  of  the 
countries  occupied  by  tribes  and  nations  of  the  Aryan  race. 
It  thus  appears  plain  that  our  ancestors  did,  to  a  very  great 
extent,  deal  with  the  soil  just  as  the  advocates  of  land- 
nationalization  wish  us  now  to  do.  The  territory  of  a 
tribe,  or  smaller  band,  was  held  in  common  ;  the  arable 
land  was  periodically  divided  up  among  the  members  of  the 
tribe,  for  individual  cultivation  ;  the  undivided  pasture 
and  the  undivided  wood-land  were  subject  to  use  by  all  the 
members  of  the  tribe,  either  at  pleasure,  or  according  to 
some  scale  adopted  by  the  tribe,  regulating  the  amount  of 


210  POLITICAL  ECONOMV. 

wood  which  any  member  might  take  out  of  the  forest,  oi 
the  number  of  animals  which  he  miglit  turn  out  to  graze 
upon  "the  common."  AVhile  this  system  of  tribal  owner- 
ship has  almost  universally  disappeared,  slight  vestiges  of 
it  arc  still  found  here  and  there,  in  Europe,  India  and 
America.  Many  of  the  communes  of  Switzerland,  for  ex- 
ample, still  hold  their  forests  after  the  old  fashion  ;  Avhile 
common  rights  of  pasturage  still  exist  in  many  communi- 
ties of  Aryan  stock. 

So  far,  therefore,  as  antiquity  can  furnish  an  argument, 
the  advantage  is  vv  ith  the  advocates  of  land-nationalization. 

185.  Why  was  Common  Ownership  Abandoned? — If  such 
was  once  a  very  common,  if  not  the  general  or  universal, 
land-policy  of  our  ancestors,  why  was  it  abandoned?  Why 
has  it  been  replaced  everywhere  by  the  system  of  private 
ownership,  which  gives  to  the  individual,  instead  of  the 
community,  the  power  and  the  right  to  exact  economic 
rent? 

The  answer  to  this  question  is  not  a  simple  one  ;  and 
here,  again,  the  advocates  of  land-nationalization  possess  a 
certain  advantage,  from  the  historical  point  of  view.  It  is 
incontestable,  that  the  gradual  passage  from  the  condition 
of  common  ownership  to  that  of  private  ownership,  was 
promoted  by  chiefs  and  great  lords,  with  a  view  to  their 
own  personal  advantage  ;  and  that  power  joined  hands  with 
cunning  to  despod  the  community  for  individual  aggran- 
dizement. Even  after  the  chiefs  and  great  lords  had  re- 
ceived lands,  as  their  own,  subject  to  public  charges  and 
to  public  duties,  they  continued  at  work  still  further  to 
benefit  themselves,  until,  by  their  power,  as  legislators  or 
governors,  they  succeeded  in  ridding  themselves  of  those 
public  charges  and  public  duties. 

But,  while  the  passage  of  the  land  from  public  to  private 
ownership  was  thus,  in  a  large  degree,  wrongful,  I  believe 


POLITICAL  ECONOMY.  211 

that  candid  inquiry  will  satisfy  every  historical  student 
that  what  made  it  possible  for  the  chiefs  and  great  lords 
thus  to  acquire  the  soil,  in  their  own  names,  was  the  fact 
that  cultivation-i]i-conimon  was  exceeding]}^  and  increas- 
ingly unproductive  and  unprofitable.  I  deem  it  not  unfair 
to  say  that  this  unproductiveness,  this  unprofitableness,  of 
cultivation-in-common  is  so  much  in  the  nature  of  the 
case,  is  so  far  unavoidable,  that  the  community  fares 
vastly  better  under  the  private  ownership  of  land,  allow- 
ing the  land-owning  class  to  take  out  their  rents,  than  it 
possibly  could  under  a  system  of  public  ownership,  where 
tlie  whole  product  should  go  to  the  community. 

186.  The  Public  Advantage  of  Private  Ownership. — The 
justification  of  the  [)rivate  ownership  of  land,  if  it  is  to  be 
justified  at  all,  is  to  be  found  in  the  public  benefits  it  con- 
fers. Its  private  benefits,  i.e.,  the  interests  of  the  land- 
lord class,  form  no  part  of  that  justification.  But,  if  it 
can  reasonably  be  proved  that  the  community  is  distinctly 
better-off  by  reason  of  private  ownership,  then,  no  matter 
how  much  individuals  may  selfishly  profit  thereby,  a  public 
benefit  is  shown,  and  the  system  is  justified. 

Now,  this  is  exactly  what  the  great  majority  of  intelli- 
gent, experienced  and  disinterested  men,  in  all  countries, 
firmly  believe.  And,  moreover,  all  those  who  hold  this 
view  also  believe,  without  exception  and  without  qualifica- 
tion, that  this  public  benefit  is  not  small  but  great ;  is  not 
transient  but  permanent,  and  is,  even,  of  increasing  im- 
portance. They  believe,  indeed,  that  public  benefit  to  be, 
not  great  merely,  but  enormous,  inexpressible  :  so  much 
so,  that  no  calamity  more  dire  could  befall  the  community 
than  a  return  to  common  ownership. 

On  the  other  hand,  there  is  a  comparatively  small, 
though  increasing,  number  of  learned  and  able  men, 
scattered  through  many  countries,  who  hold  that  the  abuses 


212  POLITICAL  ECONOMY. 

of  "landlordism"  outweigh  its  benefits.  Admitting  the 
evils  which  have  attended  common  ownership,  in  the  past, 
and  the  difficulties  to  which  it  will  always  necessarily  be 
subject,  tliey  yet  believe,  that,  as  nations  become  more  and 
more  enlightened,  and  as  political  forms  and  institutions 
become  more  and  more  democratic,  common  ownership 
will  become  an  altogether  good  thing.  Especially  do  they 
urge  that  the  acquisition,  by  the  State,  of  that  economic 
rent  which  now  goes  entire  to  the  landlord  class,  will  not 
only  relieve  the  people  from  the  present  burden  of  taxation, 
but  will  afford  ample  means  for  vast  public  improvements, 
in  parks  and  hospitals,  picture-galleries  and  museums, 
libraries  and  schools. 

The  fact  that  those  educated  and  experienced  men  who 
believe  in  the  nationalization  of  the  land  are  few,  in  com- 
parison with  those  who  believe  that  such  a  policy  would  be 
baleful  and  pernicious,  by  no  means  settles  the  question. 
Many  times  in  human  history  has  public  opinion  been  on 
the  side  of  public  abuses  and  antiquated  systems.  Yet,  not- 
withstanding this,  the  settled  preponderance  of  intelligent 
opinion  constitutes  a  powerful  presumption  in  favor  of  any 
policy.  That  presumption  may  be  overcome  by  argument 
or  by  experience  ;  but  until  this  has  been  done,  every  pru- 
dent man  will  hold  himself  strongly  bound  by  it. 

187.  The  Objections  to  the  Common  Ownership  of  Land. 
— Fully  to  discuss  such  a  question  would  require  more 
space  than  could  be  given  to  it  in  an  elementary  treatise 
like  the  present.  The  two  main  objections  to  the  common, 
or  national,  ownership  of  land  are  as  follows. 

1st.  The  amount  of  political  machinery  that  would  be 
required  to  administer  all  lands,  under  such  a  system  ;  the 
great  number  of  office-holders  to  be  appointed  for  the  pur- 
pose ;  and  the  immense  amount  of  corruption  and  favor- 
itism which  would  inevitably  be  involved.     When  one  con- 


POLITICAL  ECONOMY.  213 

siders  how  mucli  evil  results  from  the  comparatively  small 
operations  of  existing  governments,  which  have  to  do  only 
with  a  few  of  the  concerns  of  the  people,  he  cannot  but  be 
shocked  and  revolted  at  the  thought  of  governments  which 
should  own  the  soil  of  every  farm  within  their  respective 
territories,  Avhicli  should  own  the  road-bed  of  every  rail- 
way and  the  ground  upon  wliicli  every  man's  house,  shop 
or  store  was  built.  The  periodical  leasing  and  re-leasing  of 
all  these  properties,  the  fixing  of  their  respective  rentals, 
the  estimation  of  improvements  made  by  outgoing  tenants, 
would  necessarily  so  increase  the  work  of  government, 
would  involve  such  an  army  of  officials,  and  would  afford 
such  enormous  opportunities  for  corruption  and  favoritism, 
as  to  threaten  the  very  existence  of  human  society. 

2d.  Perhaps  an  even  stronger  objection  to  the  common 
ownership  of  land  is  found  in  tlie  liability  to  abuse  of  the 
soil,  whenever  it  is  cultivated  by  those  who  are  not  directly 
and  deeply  interested  in  preserving  its  fertility.  It  is  always 
possible  so  to  abuse  the  land,  as,  within  a  short  term  of 
years,  nearly  or  wholly  to  destroy  its  value.  Many  of  the  once 
fairest  tracts  on  eartb,  which  formerly  supported  large  popu- 
lations in  abundance,  are  now  little  better  than  sterile  deserts, 
all  through  man's  reckless,  or  wanton,  treatment  of  nature. 

The  productiveness  of  the  soil  can  only  be  preserved 
tlirough  the  greatest  care  and  pains  on  the  part  of  tlie  cul- 
tivating class.  In  countries,  like  England,  where  land  is 
generally  leased,  owners  are  obliged  to  protect  themselves 
against  abusive  or  destructive  cultivation,  by  the  most 
stringent  and  minute  provisions  inserted  in  their  leases  ; 
and  these  are  not  always  sufficient  to  save  the  soil  from  in- 
jury. In  countries,  like  France,  on  the  other  hand,  where 
the  land  is  cultivated  mainly  by  those  who  own  it,  in  small 
parcels,  tlie  soil  improves  from  age  to  age  on  account  of  the 
deep,  direct  and  personal  interest  which  every  cultivator 


214  POLITICAL  ECONOMY. 

feels  in  keeping  up  the  value  of  his  little  estate,  which 
was  his  father's  before  him  and  which  shall  be  his  chil- 
dren's after  him. 

Now,  were  the  owner  of  all  lands  to  be  the  State,  who 
can  believe  that  the  government  would  be  able  to  protect 
its  landed  property,  spread  over  thousands,  or  hundreds 
of  thousands,  of  square  miles,  from  the  most  monstrous 
abuse  :  abuse  which  might,  in  no  long  time,  permanently 
impair  and  even  destroy  much  of  that  property?  A  single 
generation  of  abusive  cultivation  might  cost  a  nation  far 
more  than  the  value  of  all  the  rents  that  would  be  reaped 
by  the  landlord  class,  under  the  system  of  private  owner- 
ship, to  the  end  of  time. 

It  is  the  force  of  considerations  like  the  foregoing  which 
causes  nearly  all  men  who  have  wide  knowledge  of  public 
affairs  and  who  are  well  read  in  human  history,  to  accept 
the  system  of  the  private  ownership  of  land,  as  inexpressibly 
superior  to  collective  ownership.  Fully  as  they  may  recog- 
nize the  injustice  of  the  social  arraiigements  by  which 
economic  rent  goes  to  private  individuals,  and  increases, 
not  according  to  the  exertions  and  sacrifices  of  those  indi- 
viduals, but  according  to  the  needs,  the  exertions  and  the 
sacrifices  of  the  community,  they  yet  see  no  escape  from 
this  result,  except  in  a  system  which  would  turn  govern- 
ment into  an  intolerable  despotism,  and  would,  at  the  same 
time,  j)ut  in  peril  the  permanent  productiveness  of  the  soil.* 

*  The  objection  to  collective  ownership,  arising  from  liability  to 
abuse  of  the  soil,  does  not  apply  with  equal  force,  if  at  all,  to  land 
upon  which  houses  are  erected  and  cities  built.  There  is,  here,  little 
or  no  danger  of  permanent  injury.  Consecpiently,  some  economists 
who  strenuously  oppose  the  ownership  of  agricultural  lands,  favor 
the  acquisition  by  the  State  of  all  "  urban  "  real  estate,  i.e.,  the  sites 
of  all  towns  and  cities.  The  political  objection,  however,  remains 
in  full  force  in  tlils  z?,'i'^,  if,  indeed,  it  is  not  here  in  greater  strength 
than  in  the  case  of  agricultural  lauds. 


CHAPTEE  XX 
PROFITS. 

188.  The  Point  we  have  Reached. — Let  us  pause  to  note 
just  where  we  are,  in  the  theory  of  the  distribution  of 
wealth. 

We  have  seen  (par.  55)  that  four  grand  productive 
agents,  viz.,  Laud-power,  Business  Ability,  Capital  and 
Labor,  are  applied  to  the  production  of  wealth,  in  its  vari- 
ous forms.  We  have  seen  (par.  165)  that  the  aggregate 
body  of  wealth,  thus  jDroduced,  is,  in  economic  theory,  first 
divided  into  two  great  shares. 

Of  these  shares,  one  is  equivalent  to  the  volume  of 
wealth  that  would  have  been  produced  had  all  the  lahor 
and  capital  heen  employed  "at  the  greatest  disadvantage": 
that  is,  had  all  the  labor  and  capital  been  applied  to  lands 
no  better  than  the  poorest  actually  cultivated  for  the  sup- 
ply of  the  market  ;  and  been  so  aj^plied  by  employers  no 
more  efficient  than  the  least  comjietent  employers  actually 
controlling  any  considerable  part  of  that  labor  and  capital. 
All  the  body  of  wealth  tlius  constituted  is,  as  we  saw,  to 
go,  entire  and  without  deduction,  to  capitalists  and  labor- 
ers, though  we  are  not  yet  prepared  to  show  how  that 
amount  is  to  be  divided  between  capitalists  and  laborers. 

The  other  great  share  of  the  product  of  industry  consists 
of  all  THE  EXCESS  OF  PRICE  OVER  COST.  This  is  to  go, 
entire  and  without  deduction,  to  landlords  and  employers. 
Xone  of  it  can  go  to  either  the  laborer  or  the  capitalist,  as 
such.     Of  this  great  share  of  tlie  product  of  industry,  we 

215 


216  POLITICAL  ECONOMY. 

have  already  taken  into  consideration  one  part,  viz.,  Ecnt, 
going  to  the  landlord,  as  remuneration  for  the  use  of  the 
native  powers  of  the  soil.  Normal  price  being  fixed  by  the 
cost  of  production  (capital  and  labor)  upon  the  poorest 
soils  actually  under  cultivation  for  the  supply  of  the  mar- 
ket (which  lands  themselves  pay  no  rent,  see  par.  173),  the 
owners  of  all  the  more  productive  lands  realize  a  surplus 
of  price  over  cost.  AVe  have  seen,  in  the  last  chapter,  tliat 
such  a  surplus  must,  in  the  nature  of  things,  exist  ;  and 
that  it  can  only  go  to  the  owner  of  the  soil,  be  that  an  in- 
dividual or  the  State. 

189.  The  Origin  of  Profits.— We  now  pass  to  consider  the 
second  of  the  two  parts  into  which  that  great  body  of  wealth 
which  consists  of  the  excess  of  price  over  cost,  is  divided. 
To  this  part  we  assign  the  name.  Profits.  It  is  the  remu- 
neration of  Business  Ability,*  engaged  in  the  production  of 
wealth.  What  is  the  origin  of  profits  ?  Why  should  any 
part  of  the  product  of  industry  go  to  the  Employer  ?  To 
this  question  every  one  of  my  readers  will  have  an  answer 
ready,  lie  Avill  say  that  the  employer  must  receive  some 
share  of  the  product  of  industry,  in  order  that  he  may  re- 
main an  employer,  at  all.  Whether  he  is  to  receive  more, 
or  is  to  receive  less,  he  must,  at  the  least,  receive  enough 
to  keep  him  alive  and  in  condition  to  do  his  work.  But 
why  should  he  receive  any  more  than  that  ?  To  this  ques- 
tion, again,  every  one  of  my  readers  will  have  an  answer 
ready.  The  employer  must  receive  as  much  as  the  laborer 
receives.  When  I  si)eak  of  the  laborer,  in  this  connection, 
I  do  not  mean  the  day-laborer,  or  the  unskilled  laborer  ; 
but  have  reference  to  laborers  of  the  higher  grades,  viz., 
superintendents,  overseers,  foremen,  clerks,  cashiers,  ac- 
countants.   Unless  the  employer  is  to  receive,  on  the  aver- 

For  the  definitiou  of  this  industrial  agent,  see  par.  55. 


POLITICAL  ECONOMY.  217 

age,  taking  one  year  with  another,  as  much,  or  about  as 
much,*  as  laborers  of  this  fehass,  he  will  naturally  prefer  to 
become  a  laborer  himself.  In  order,  therefore,  that  there 
may  be  employers  (pars.  54-55),  the  remuneration  of  this 
industrial  agent  must,  at  the  least,  be  as  great  as  the  re- 
muneration of  the  laborer  :  that  is,  profits  must  be  equal  to 
wages.  Here,  then,  we  take  our  start,  in  dealing  with 
profits.  AYe  have,  in  wages,  the  minimum  of  profits, 
T\^hat  we  are  to  inquire  about,  in  the  present  chapter,  is 
this:  howdoes  it  come  about  that  employers,  all  or  any  of 
them,  receive  more  than  this  minimum  ? 

190.  The  No-Profits  Class  of  Employers.— To  the  re- 
muneration of  the  employing  class,  so  far  as  it  does  not 
exceed  the  minimum  spoken  of  above,  we  do  not  apply 
the  term,  profits.  Profits,  not  in  excess  of  wages,  are  not 
jirofits  at  all.  Although  received  by  employers,  they  are  still 
nothing  but  wages.  They  are  governed  by  the  same  law  as 
wages,  and  should  be  considered  as  wages,  and  nothing  else. 

Now,  what  we  have  first  to  note  is  the  all-important  fact 
that  there  is  a  grade  of  employers  Avho  receive  no  profits : 
that  is,  whose  remuneration  does,  on  the  whole  and  in 
the  long-run,  not  exceed  the  amount  which  these  persons 
could  individually  have  expected  to  receive,  as  wages,  if 
employed  by  others.  In  every  large  body  of  employers, 
there  are  always  some  no-profits  employers,  just  as,  in  the 
lands  cultivated  for  the  supply  of  any  considerable  market, 
there  are  always  some  no-rent  lands.  This  is  the  fact  witli 
which  we  start,  in  ascertaining  the  law  of  i)rofits. 

*I  say,  "about  as  miicli,"  because  there  is  a  class  of  men  to 
wliom  the  exercise  of  autliority  and  the  opportunity  to  exert  niarl^ed 
executive  ability  might  be,  in  some  measure,  a  recompense  for  under- 
taking the  duty  of  an  employer.  The  number  of  such  men  un- 
doubtedly tends  to  increase  with  the  progress  of  civilization  and  the 
diffusion  of  intelligence. 


218  POLITICAL  ECONOMY. 

If  the  prices  of  goods  Avere  so  high  that  all  employers 
made  j)rofits  (that  is,  something  in  excess  of  wages),  then 
it  would  inevitably  happen,  either  that  more  j^ersons  would 
go  into  business  and  become  employers,  in  order  to  secure 
these  profits,  or,  else,  that  the  existing  employers  would 
try  to  increase  their  business,  so  as  to  get  more  of  these 
profits.  By  the  operation  of  this  simple  force  it  comes 
about  that  competition  among  employers,  for  the  profits  of 
employment,  constantly  tends  to  bring  prices  down  to  the 
point  where  the  least  efficient  employers  make  no  profits. 

191.  The  More  Efficient  Employers, — Starting,  thus, 
with  a  class  of  employers  whom  we  call  the  no-profits  em- 
ployers, we  have  to  note  the  indisputable  fact  that  above 
these  rise,  rank  on  rank,  employers  of  higher  and  still 
higher  degrees  of  efficiency  in  the  emj^loyment  of  labor  and 
the  conduct  of  business.  These  are  men  who  have,  by  the 
force  of  education  or  of  experience,  excejitional  abilities  or 
adaptations  for  commercial  or  industrial  success.  They 
are  not  always  better  men  or  better  citizens  than  their  less 
successful  brethren;  but,  from  whatever  source  they  derive 
it,  they  possess  peculiar  power  in  the  production  of  wealth. 
Using  the  same  amounts  of  labor  and  of  caj)ital,  they  are 
able  to  produce  more  of  wealth  thereby. 

I  say,  more  of  wealth:  that  is,  a  larger  amount  of  value. 
This  may  mean  more  goods  of  the  same  kind;  or  it  may 
mean  the  same  amount  of  goods,  but  of  a  better  kind. 
Sometimes  the  peculiar  industrial  efficiency  of  an  employer 
may  be  exhibited  in  the  prevention  of  waste  in  his  mate- 
rials, sometimes  in  the  saving  of  wear-and-tear  to  ma- 
chinery and  injury  to  tools.  Sometimes  it  may  take  the 
form  of  ability  to  get  much  more  out  of  his  body  of  work- 
men, within  the  usual  number  of  hours.  We  have  shown, 
in  paragraph  53,  that  this  does  not  necessarily  mean  a 
greater  physical  and   nervous   strain   upon   the   laborers. 


POLITICAL  ECONOMT.  219 

Sometimes  the  peculiar  iiiclustrkl  efficiency  of  an  employer 
may  result  in  the  production  of  a  body  of  goods  no  greater, 
but  of  a  finer  finish,  or  of  more  durable  quality,  or  of  a 
more  attractive  shape,  commanding,  thus,  a  higher  price  in 
the  market.  Sometimes  the  advantage  which  oue  em- 
ployer possesses  over  another,  consists  in  a  wider  knowl- 
edge of  men  and  a  deeper  insight  into  character,  enabling 
him  to  avoid  grave  mistakes  in  entrusting  his  interests  to 
incapable  and  unfaithful  persons,  or  in  selling  his  goods  to 
irresponsible  or  dishonest  parties.  Sometimes  the  higher 
efficiency  of  employers  may  come  from  a  rare  commer- 
cial instinct,  which  enables  tlieni  to  tell,  almost  without 
knowing  wliy,  that  prices  are  going  to  rise  or  to  fall. 

It  is  not  necessary  to  extend  the  description  of  the  va- 
rious ways  in  which  certain  employers  come  to  produce 
more  of  wealth  than  others  are  able  to  do,  with  the  same 
amount  of  labor  and  capital.  Those  ways  are  not  few,  but 
many,  very  many.  The  resulting  differences  are  not  small, 
but  great,  very  great. 

192.  The  Law  of  Profits. — If  we  liave  correctly  discerned 
and  stated  the  facts  of  industrial  society,  so  far  as  they 
bear  on  this  subject,  we  are  now  in  a  position  to  lay  down 
the  law  of  profits. 

Profits  arise  out  of  the  differences  in  produc- 
tive EFFICIEXCY  AMONG  THE  EMPLOYERS  ACTUALLY  EN- 
gaged in  business,  for  the  supply  of  any  market. 
Profits  consist  of  the  entire  excess  of  price  over 

COST   OF    production,  AFTER   ReNT   HAS   BEEN    PAID. 

We  shall  illustrate  this  principle  sufficiently  for  the  pres- 
ent purpose,  if  we  suppose  that  the  required  supply  of 
goods,  of  a  certain  kind,  at  the  existing  price,  would  yield 
fifty  millions  of  dollars;  and  that  this  aggregate  has  been 
produced,  in  equal  amounts,  by  fifty  employers.  Now,  in 
such  a  case,  it  is  certain  that  some  of  these  employers  will 


220  POLITICAL  ECONOMY. 

barely  be  able  to  make  themselves  good  for  their  outlay  in 
wages,  in  materials,  in  machinery  and  in  other  ways. 
They  will  have  little  or  nothing  left  to  themselves,  after 
all  the  care  and  the  pains  they  have  taken  ;  after  all  the 
risks  they  have  run ;  after  all  the  anxieties  they  have  en- 
dured. In  the  same  body  of  employers,  there  will  be 
others  who  have  made  ten  thousand  dollars,  in  producing 
the  same  amount  of  goods  ;  others  who  have  made  twenty 
thousand  dollars  ;  others,  still,  who  have  forty,  sixty,  or 
eighty  thousand  dollars  left  in  their  hands,  after  paying 
all  bills  which  are  properly  chargeable  to  that  production, 
including  deterioration  of  plant,  wear-and-tear  of  machin- 
ery, interest  on  capital,  bad  debts,  etc. 

193.  The  Effects  of  Accident  and  Fraud. — It  is  true  that, 
in  some  cases,  and  more  or  less  in  most  cases,  the  force 
of  fraud,  or  the  effect  of  accidents,  like  fires  and  floods, 
will  have  had  something  to  do  with  the  failure  of  an 
employer  to  realize  a  larger  profit,  or  to  realize  any  profit 
at  all,  on  his  month's  or  his  year's  business.  But  this  fact 
does  not  impair  the  truth  or  the  importance  of  what  has 
been  stated.  Were  no  frauds  perpetrated,  did  no  accidents 
take  place,  there  would  still  be  employers  who  would 
realize  no  profits  out  of  any  given  amount  of  business  ; 
while  other  employers  were  making  profits ;  others, 
large  profits ;  others,  still,  monstrous  profits,  under  the 
same  conditions,  and  with  the  use  of  the  same  amounts 
of  labor  and  capital. 

Generally  speaking,  too,  the  men  who  make  large  prof- 
its, in  spite  of  accidents  and  frauds,  are  the  men  who 
would  make  large  profits  in  the  absence  of  accidents  and 
frauds ;  while  the  men  who  make  small  profits,  or  none, 
in  the  actual  case,  are  the  men  who  would  make  small 
profits,  or  none,  in  the  hypothetical  case.  The  ability  to 
guard  against  fraud,  the  ability  to  foresee  impending  evil. 


POLITICAL  ECONOMY.  221 

to  break  its  force  and  to  repair  its  effects,  are  among  the 
qualifications  for  the  successful  conduct  of  business. 

194.  The  Analogy  Between  Rent  and  Profits. — It  will  be 
seen  that  there  is  a  very  close  analogy  between  rent  and 
profits.  In  dealing  with  rent,  we  begin  with  the  no-rent 
lands  (par.  173),  and  measure  rent  upwards  from  that  line. 
In  dealing  with  profits,  we  begin  with  the  no-profits  em- 
ployers, and  measure  profits  upwards  from  that  line.  In 
each  case,  we  find  that  differences  in  productive  efficiency 
(labor  and  capital  being  assumed  equal)  create  a  surplus, 
which  consists  of  the  excess  of  price  over  cost,  price  being 
fixed  by  the  cost  of  "  production  at  the  greatest  disadvan- 
tage,'' 

That  analogy  we  may  carry  on  to  the  end.  Rent,  we  saw, 
(par.  175)  does  not  enter  into  the  price  of  produce.  In 
the  same  way,  we  see  that  profits  do  not  enter  into  the 
price  of  produce,  or  of  products,  since  the  j^rice  of  these  is 
determined  by  the  cost  of  their  production  at  the  hands  of 
employers  who  tliemselves  receive  no  profits.  Prices  must 
be  high  enough  to  enable  this  class  of  employers  to  keep  up 
their  business:  otherwise,  the  required  supply  would  fall 
short  in  the  market.  Prices  being  fixed  so  high,  by  this 
cause,  those  employers  who  are  able  to  produce  at  a  less 
cost  realize  a  surjilus.  Prices,  tlien,  are  not  high  hecmise 
profits  are  made ;  but  profits  are  made  tecause  inices  are 
high. 

No  more  is  it  true  that  profits  are  obtained  by  deduction 
from  wages.  The  employers  who  make  profits  pay  as 
high  wages*  as  the  employers  who  make  no  pi-ofits.  The 
reason  why  wages  are  no  higher  than  they  are,  is  because 

*  In  a  certain  sense,  they  pay  somewhat  hiirher  wages,  since  the 
greater  continuity  of  eniploynient  and  certainty  of  paj'ment,  wliich 
belong  to  the  laborers  who  work  for  the  more  successful  employers, 
are  really  as  good  as  a,  sniaU  addition  to  their  wages. 


S2^  POLITICAL  ECONOMY. 

the  least  competent  employers  (whose  demand  is  essential 
to  taking  up  the  whole  supply  of  labor  in  the  market),  can- 
not pay  any  higher  wages  and  get  them  back  in  the  price 
of  their  products.  Tlie  existence  of  profits,  then,  consti- 
tutes no  wrong  to  the  laborer.  They  represent,  from  first 
to  last,  the  creation  of  an  additional  amount  of  wealth,  by 
the  skill,  energy  and  prudence  of  the  successful  employer. 
Wages  would  be  no  greater,  were  profits  to  be  prohibited. 

195.  Lowering  the  Margin  of  Production. — The  last 
point  we  shall  note,  in  the  analogy  between  rent  and  jjrofits, 
is  that,  in  both  cases,  it  is  for  the  interest  of  the  laboring 
class  that  the  "margin  of  production"  should  not  be  low- 
ered. In  treating  of  rent,  we  showed  (par,  168)  that,  if 
cultivation  be  driven  down  to  inferior  soils,  not  only  a  larger 
actual  amount,  but  a  larger  share,  of  the  produce  necessarily 
goes  to  the  land-owning  class,  as  rent.  Likewise  in  the 
case  of  j)rofits,  it  is  for  the  interest  of  the  laborers,  as  well 
as  of  the  entire  community,  that  emjiloj^ers  of  a  lower 
grade  of  industrial  eflSciency  should  not  be  brought  into 
the  conduct  of  business.  If  the  margin  of  production  is 
to  be  lowered,  in  this  resj)ect,  not  only  a  larger  actual 
amount,  but  a  larger  share,  of  the  j^roduct  will  necessarily 
go  to  the  employing  class,  as  j^rofits.  Prices  are  deter- 
mined by  the  productive  capability  of  the  lowest  class  of 
employers  who  are  actually  producing  for  the  sujjply  of 
the  market ;  and  all  excess  of  those  prices,  over  the  cost  of 
production  in  the  hands  of  the  more  capable  men  of  busi- 
ness, goes  to  these  latter,  individually,  as  profits. 

We  see,  by  this,  how  mistaken  are  the  views  and  feelings 
commonly  entertained  by  laborers  regarding  profits.  Gen- 
erally speak)  ig,  the  laboring  class  have  not  a  little  jealousy 
and  envy  toward  the  large  profits  of  successful  employers. 
But,  if  we  have  correctly  discerned  and  stated  the  origin  of 
profits,  the  only  real  injury  done  to  the  laboring  class  is 


Political  economy.  223 

through  the  comparative  incompetence  of  those  employers 
who  realize  no  profits  from  the  conduct  of  business.  When 
we  come  to  speak  of  the  effects  of  imperfect  competition 
(Chap.  XXIV),  we  shall  have  occasion  to  refer  to  certain 
causes  which  tend  to  bring  incompetent  men  into  the  con- 
duct of  business,  and  to  keep  tlieni  there,  at  the  expense 
of  the  community,  in  general,  and  of  the  laboring  class 
in  particular. 

196.  To  Whom  do  Profits  Belong? — In  treating  of  rent, 
it  was  shown  (par.  177  to  181)  that,  under  the  private 
ownership  of  land,  rents  must  necessarily  go,  entire,  to  the 
owners  of  land,  as  such ;  and  that  no  economic  force  could 
be  invoked  which  would  have  the  tendency  to  carry  rents, 
or  any  part  of  them,  to  any  other  class  in  the  community. 
But  it  was  also  shown  that  the  community,  the  State, 
might,  if  this  were  thought  wise,  lay  claim  to  rents,  on 
grounds  of  political  equity. 

Could  any  such  claim  be  made  to  profits,  on  behalf  of 
the  community,  the  State  ?  In  such  a  case,  the  commun- 
ity, the  State,  would,  in  effect,  say  to  the  men  of  superior 
ability:  ''You  shall  continue  to  carry  on  business,  to  em- 
ploy labor  and  capital,  to  direct  the  production  of  wealth  ; 
but  the  profits  you  may  realize  belong  to  the  State  and 
must  be  paid  into  the  public  treasury.  We  will,  perhaps, 
allow  you  some  small  part  thereof,  as  an  encouragement  to 
you  to  do  your  best ;  but  we  cannot  admit  that  you  have  a 
right  to  the  wealth  which  you  create  by  your  skill,  energy 
and  prudence,  over  and  above  the  wealth  which  other  em- 
ployers, of  less  ability,  can  produce  with  the  same  amount 
of  labor  and  capital.'"  We  can,  indeed,  conceive  an  Asiatic 
government  making  this  demand  ;  but  such  a  view  would 
be  so  foreign  and  so  hostile  to  the  ideas  and  sentiments 
of  our  people,  that  it  need  not  be  discussed  here. 

It  may,  however,  be  said  that,  should  any  government 


2^4  POLITICAL  ECONOMt. 

undertake  thus  to  confiscate  profits,  it  would  surely  find 
that,  while  it  could  easily  prevent  individuals  from  realiz- 
ing profits,  it  would  not  bring  any  wealth  thereby  into  the 
public  treasury.  The  act  of  the  man  who  killed  the  goose 
that  laid  the  golden  eggs,  would  be  wisdom  itself,  in  com- 
parison with  the  folly  of  such  a  course.  The  fact  that  the 
employer  is  to  realize,  for  his  own  benefit,  all  that  is  to  be 
saved,  and  all  that  is  to  be  gained,  by  his  prudence,  en- 
ergy and  skill,  is  of  the  very  essence  of  that  prudence, 
energy  and  skill.  Were  the  reward  of  his  exertions  to  be 
taken  from  him,  the  mainspring  of  those  exertions  would 
be  broken. 

197.  The  Socialist  View  of  the  Employer. — I  have 
spoken  in  this  chapter,  and  frequently  throughout  this 
book,  of  the  part  which  the  employer  performs,  in  the  pro- 
duction of  wealth,  as  I  understand  it.  I  do  not  believe 
that  I  have  one  whit  exaggerated  the  importance  of  that 
industrial  function.  Those  writers,  however,  called  Social- 
ists, who  desire  to  have  the  State  do  everything  in  the 
production  of  wealth,  and  who  would  abolish  at  once  the 
private  ownership  of  land  and  private  enterprise  in  produc- 
tion, are  naturally  disposed  to  take  a  low  view  of  the  im- 
portance of  the  employer's  work.  This  is,  partly,  because 
a  higher  view  of  that  work  would  go  against  their  own 
scheme  ;  partly,  because  many  of  these  writers  entertain  a 
deep  prejudice  and  even  an  intense  hostility  towards  the 
body  of  employers,  whom  they  regard  as  engaged  in  rob- 
bing the  laboring  class.  Few  of  these  writers  have  had 
either  the  kind  of  education  or  the  opportunities  for  ob- 
servation which  would  qualify  them  to  form  valuable  opin- 
ions on  such  a  question. 


CHAPTER  XXI. 
PROFITS,  CONTINUED :  CO-OPERATION. 

198.  What  is  Industrial  Co-operation  ? — The  contempla- 
tion of  large  profits  realized  by  tlie  employers  has  given 
rise  to  many  movements,  in  this  and  in  other  countries, 
which  have  had  for  their  object  to  secure  to  the 
laborers,  themselves,  the  gains  which  otherwise  the 
emploj'er  would  reap.  These  movements  may  all  be  em- 
braced under  the  general  terra.  Co-operation.  We  shall  de- 
vote the  present  chapter  to  considering  the  objects  of  in- 
dustrial co-operation;  the  advantages  which  it  would  se- 
cure, if  successful;  the  liabilities  to  loss  and  failure  which 
co-operation  encounters;  the  conditions  under  which  co- 
operation would  have  the  largest  chances  of  success. 

The  main  purpose  which  a  body  of  laborers  have  in  view 
in  initiating  co-operation  is  to  get  rid  of  the  employer,  by 
doing  his  work  themselves,  and  thus  reaping  his  gains. 
Seeing  that  a  large  amount  of  wealth  is  realized  by  the  em- 
ploying class,  they,  not  unnaturally,  say,  wiiy  should  we 
not  employ  ourselves?  Wliy  should  we  not  get  together 
freely,  instead  of  being  brouglit  together  and  hired  by  some 
one  else?  Why  should  we  not  decide,  for  ourselves,  in 
what  line  we  shall  work;  buy  our  own  materials;  apply  to 
these  our  own  labor;  sell  tlie  goods  ourselves;  and  put  into 
our  own  pockets  the  entire  value  of  the  product? 

I  have  said  tliat  in  co-operation  the  object  is  to  get  rid 
of  the  employer.  Unfortunately  the  more  usual,  indeed, 
the  general,  way  of  putting  it  is  that  the  object  of  co-oper- 

225 


^^6  POLlTtGAL  ECONOMY, 

ation  is  to  get  rid  of  the  capitalist.  Tins  form  of  statement 
is  not  only  erroneous;  it  is  grossly  misleading. 

Co-operation  is  not  going  to  get  rid  of  the  capitalist.  Co- 
operation has  no  tendency  to  get  rid  of  the  capitalist.  A 
body  of  co-operative  laborers  must  have  as  much  capital  to 
use  as  a  body  of  laborers  working  under  an  employer.  If 
they  have  not,  their  failure  will  be  assured  from  the  start. 
They  mnst  have  just  as  many  and  just  as  good  tools;  just 
as  much  and  just  as  good  material;  just  as  ample  and 
commodious  rooms  or  buildings;  just  as  much  water-power 
or  steam-power,  for  a  given  product.  The  essence  of  co- 
operation, I  repeat,  is  that  the  laborers  are  to  emjjloy  them- 
selves. Doing,  thus,  the  emploj^er's  work,  they  hope  to 
reap  his  gains. 

199.  The  Advantages  Sought  in  Co-operation. — We  have 
already  indicated  the  first  of  the  advantages  sought  for  in 
co-operation,  viz.,  to  secure  for  the  laboring  class  that  large 
amount  of  wealth  which  goes  annually,  in  profits,  to  em- 
ployers. But  there  is  a  second  advantage  which  the  more 
thoughtful  members  of  the  laboring  class  see  would  result 
from  the  success  of  co-operation,  viz.,  it  would  secure  to 
the  laborer  the  opportunity  to  produce  wealth  independent- 
ly of  the  will  of  an  em23lo3'er.  Under  the  present  system, 
it  remains  with  the  employer  to  decide,  not  only  what  shall 
be  produced,  and  how  and  when  it  shall  be  produced,  and 
in  what  amounts,  but,  also,  whether  any  production,  at  all, 
shall  take  place.  The  employer's  motive  in  production  is 
the  profit  he  expects  to  realize  for  himself.  Generally 
speaking,  he  will  only  produce  as  he  sees  an  opportunity  to 
make  a  profit. 

It  is  true  that  the  employer  may  carry  on  production  for 
a  while,  out  of  sympathy  for  his  workmen,  even  though 
the  state  of  the  market  is  so  unfavorable  that  he  does  not 
anticipate  making  much  or  any  profit  for  himself.     It  is 


POLITICAL  ECONOMY  227 

true  that  he  may  even,  at  times,  consent  to  carry  on  pro- 
duction at  a  slight  loss,  rather  than  let  his  customers  go  to 
others,  or  close  his  works.  But  these  considerations  cannot 
be  relied  upon  to  any  great  extent  or  for  any  long  period; 
nor  can  they  be  relied  upon  at  all,  as  against  the  apjjrehen- 
sion  of  considerable  loss.  In  a  state  of  the  market  which 
canses  the  employer  to  doubt,  wliether,  after  paying  out 
large  sums  for  materials  and  labor,  he  will  get  his  money 
back  in  the  price  of  the  products,  the  most  natural  course 
for  him  to  adopt  is  to  curtail  production,  to  the  extent  of 
one-third  or  of  one-half. 

The  laborers  who  are  thus  allowed  to  work  only  on  two- 
thirds  or  half  time,  cannot  rightly  complain  that  the  em- 
ployer should  protect  his  own  interests.  But,  if  they  should 
choose,  through  co-o^Jeration,  to  take  the  risks  and  the  re- 
sponsibilities upon  themselves,  it  would  be  in  their  power 
to  keep  up  production  continuously.  No  matter  what  the 
state  of  the  market,  they  could  remain  at  work,  producing 
their  goods  and  selling  them  for  what  they  were  worth,  or 
holding  them  over  until  a  better  time.  This  might  be 
much  better  for  them  than  not  working  at  all.  On  the 
other  hand,  it  might  be  much  worse  for  them.  Whether  it 
should  be  better  or  be  worse  would  somewhat  depend  upon 
the  nature  of  the  business;*  more,  upon  the  judgment  and 
good  sense  displayed  by  the  co-operators.  In  any  case,  it 
would  no  longer  be  the  interest  of  the  one  employer,  but 
the  interest  of  the  many  workmen,  which  should  decide 
whether  production  were  to  pi'oceed  or  not. 

200.  Co-operation,  in  the  View  of  the  General  Eco- 
nomic Interest. — I  have  mentioned  the  two  chief  benefits 

*  For  ex!uni)k',  in  a  business  where  the  value  of  the  luaterialsused 
was  small,  and  the  value  of  the  iM-oduct  depended  mainly  on  the 
amounl  and  quality  of  the  labor  expended,  such  a  i)Ian  would  work 
much  belter  tliau  ia  a  busiuesa  where  ihere  was  u  large  outlay. 


228  POLITICAL  ECONOMY. 

which  the  hiboriug  class  look  to  secure  for  themselves  by 
means  of  co-operatiou.  In  addition  to  these,  the  political 
economist  sees  in  such  a  system  three  possible  sources  of 
advantage. 

1st.  Co-operation  would,  by  the  very  terms  of  the  case, 
do  away  with  strikes.  There  would  no  longer  be  any  one 
to  strike  against.  The  employer  having  disappeared,  the 
workmen  having  become  self-employed,  those  destructive 
contests,  in  which  prejudice,  passion  and  greed  take  so 
large  a  part,  would  disappear,  as  a  matter  of  course. 

2d.  The  workman  would  be  incited  to  greater  industry 
and  to  greater  carefulness  in  dealing  with  materials,  tools 
and  machinery.  It  was  stated,  in  paragraph  46,  that  when- 
ever men  take  the  position  of  hired  laborers,  working  for 
wages,  some  part  of  that  hopefulness  and  cheerfulness  in 
labor,  which  are  the  most  fruitful  source  of  strenuous  ex- 
ertions, is,  by  the  nature  of  the  case,  lost.  A  body  of  co- 
operative workmen,  on  the  other  hand,  would  have  the  ad- 
vantage of  all  these  inspirations  and  incitements  which  we 
sought  to  describe  in  paragraphs  43,  44  and  45. 

3d.  Frugality  would  be  greatly  encouraged.  It  cannot 
be  doubted  that  a  body  of  laborers,  having  an  oj)portunity 
to  invest  their  savings,  at  once  and  on  the  spot,  in  their 
own  business,  and,  indeed,  feeling  strongly  the  need  of  ad- 
ditional capital  to  carry-on  that  business,  would  come  un- 
der more  powerful  inducements  to  frugality  than  a  body  of 
wage-laborers. 

201.  Co-operation  from  a  Still  Higher  Point  of  View. — 
In  addition  to  the  foregoing  advantages  which  might  result 
from  co-operation,  as  viewed  by  the  political  economist,  the 
moralist  and  the  statesman  can  discern  in  this  system  the 
possibilities  of  still  greater  benefits.  Co-operation,  if  it 
could  be  introduced  and  maintained,  would  greatly  tend  to 
educate  and  elevate  the  working  classes,  in  all  the  elements 


POLITICAL  ECONOMY.  229 

of  character  and  citizenship.  It  would  give  them  a  more 
palpable  stake  iu  the  community;  and  thus  promote  peace 
and  social  order.  It  would  train  them  to  the  discussion 
and  decision  of  important  questions;  and  thus  at  once  in- 
crease their  general  intelligence  and  teach  them  moderation, 
prudence  and  respect  for  the  opinions  of  others.  It  would 
strengthen  the  bonds  of  society,  and  would  do  away  with 
many  of  those  feelings  of  envy,  jealousy  and  distrust  which 
keep  apart  the  members  of  a  community. 

202.  The  Difficulties  of  Co-operation. — Tlie  advantages 
of  co-operation  beiug  so  many  and  so  great,  it  will  natural- 
ly be  asked  why  this  scheme,  proposed  so  long  ago,  sanc- 
tioned by  the  highest  economic  authority,  appealing  direct- 
ly to  the  self-interest  of  the  laboring  classes,  advertised  ex- 
tensively in  discussions  relating  to  labor  and  wages,  has 
not  been  immediately  successful,  upon  a  large  scale?  How 
is  it,  that,  on  the  contrary,  of  the  great  number  of  enter- 
prises, of  this  character,  which  have  been  started  in  Eng- 
land, France,  the  United  States*  and  other  countries, 
only  a  few  have  achieved  a  decided  or  even  a  moderate  suc- 
cess; while  more  have  failed  or  been  abandoned? 

I  answer:  the  difficulties  of  co-operation  are  directly  as 
its  advantages.  The  power  wielded  and  profits  enjoyed  by 
employers  make  the  working  classes  desire,  naturally 
enough,  to  bring  about  a  different  industrial  order.  Yet, 
when  a  body  of  laborers  set  up  for  themselves,  the  result 
very  soon  shows  that  the  reason  why  the  employer  wields 
such  arbitrary  power  and  enjoys  such  large  revenues,  is  that 
he  performs  a  part  in  modern  industrial  society  (pars.  54 
and  55)  which  is  of  supreme  importance:  in  which  any- 

*  The  publications  of  the  American  Economic  Association  contain 
the  most  recent  and  reliable  accounts  of  the  many  and  various  co- 
operative enterprises  which  have  been  undertaken  in  the  United 
Stateb. 


230  POLITICAL  ECONOMT. 

thing  less  than  the  highest  abilities  of  administration  and 
organization  involves  comparative,  if  not  absolute,  failure. 

203.  Is  Co-operation  Practicable,  in  a  Near  Future? — 
The  time  may  come,  when  a  body  of  laborers,  joined  to- 
gether for  the  purposes  of  co-operative  production,  will  give 
as  intelligent  a  direction,  as  close  a  supervision,  as  rigid  a 
disci^iline,  as  energetic  an  impulse,  to  the  work  in  which 
they  are  engaged,  as  the  present  successful  man  of  business 
gives  to  the  enterprises  on  which  his  fortunes  and  his  repu- 
tation are  staked.  This  may  come  about,  in  time;  but,  for 
one,  though  believing  thoroughly,  so  far  as  politics  are 
concerned,  in  a  "^government  of  the  people,  by  tbe  people, 
for  the  people,"!  I  see  nothing  which  indicates  that,  with- 
in the  near  future,  industry  is  to  become  less  despotic  than 
it  now  is.  The  power  of  the  Master,  "  the  captain  of  in- 
dustry,^' has  steadily  grown  throughout  the  present  century, 
with  the  increasing  complexity  of  commercial  relations, 
with  the  greater  concentration  of  capital,  with  continual 
improvements  of  appai^atus  and  machinery,  with  the  multi- 
plication of  styles  and  patterns,  with  the  localization  and 
specialization  of  manufactures. 

No  one  would  rejoice  more  heartily  than  the  writer  to 
see  the  working  classes  rise  to  the  height  of  the  occasion, 
and  vindicate  their  right  to  rule  in  industry  by  showing 
their  power  to  do  it.  But  meanwhile  it  should  be  under- 
stood that  nothing  costs  the  working  classes  so  much  as  the 
bad  or  weak  or  commonplace  conduct  of  business.  Indus- 
try must  be  energetically,  economically  and  wisely  managed, 
no  matter  who  is  to  do  it.  Co-operation  will  only  be  suc- 
cessful as  it  results  in  the  production  of  equally  good 
articles,  at  equally  low  prices,  with  those  produced  in  estab- 
lishments controlled  by  individual  employers. 


+  President  Lincoln. 


POLITICAL  ECONOMY.  231 

204.  A  Possible  Field  for  Industrial  Co-operation. — I 
have  spoken  thus  strong!}-  of  the  difficulties  of  co-opera- 
tion, because  I  believe  that  only  harm  caii  come  to  the 
working  classes  from  slurring-over  those  difficulties,  as  has, 
with  the  best  intentions,  been  done  by  many  writers.  Not 
a  few  economists  have  spoken  on  this  subject  as  if  co-oper- 
ation were  the  easiest  thing  in  the  world  to  bring  about, 
the  only  difficulty  being  to  get  the  working  classes  inter- 
ested in  it.  It  onght,  on  the  contrary,  to  be  clearly  un- 
derstood that  the  difficulties  of  the  scheme  are  great  in 
proportion  to  its  advantages;  that  co-operation  can  only 
succeed  when  undertaken  by  intelligent  and  high-minded 
men,  who  will  carefully  study  their  business;  who  will 
put  all  envyings  and  jealousies  and  mean  suspicions  under 
their  feet;  who  are  prepared  to  do,  to  endure  and  to  for- 
bear much,  for  the  good  they  seek;  who  have  magnanimity 
enough  to  give  a  cordial  support  to  the  managers  they  shall 
choose,  to  trust  them  thoroughly,  and  to  pay  them  hand- 
somely. 

In  speaking  thus,  I  have  reference  to  industry  as  a 
whole,  and  especially  to  its  larger  branches,  which  supply 
general  markets,  and  which  are  subject  to  competition  at 
once  searching  and  far-reaching.  There  are,  however, 
))ortions  of  the  field  of  industry  where  the  difficulties  are 
less  formidable. 

Where  (1)  a  branch  of  industry  is  of  such  a  nature  that 
it  can  best  be  carried  on  by  a  small  group  of  workmen, 
rather  than  in  large  establishments;  where  (2)  the  work- 
men so  engaged  are  substantially  on  a  level,  as  regards 
strength  and  skill;  where  (3)  the  initial  expenditure  for 
tools  and  the  running  expenditures  for  materials  are  small; 
and,  especially,  where  (4)  the  goods  are  to  be  produced 
wholly  or  mainly  for  the  local  market,  the  difficulties  of 
the  co-operative  system  sink  to  a  minimum,  while  its  ad- 


232  POLITICAL  ECONOMY. 

vantages  rise  to  a  maximum.  It  is,  therefore,  in  such 
branches  that  the  experiment  of  productive  co-operation 
should  first  be  tried.  Success  can  be  achieved  here,  if 
anywhere.  Should  success  be  here  achieved,  advantage 
may  be  taken  of  the  experience  thus  accumulated  and  of 
the  training  thus  acquired,  to  undertake  larger  and  still 
larger  enterprises. 

205.  Profit-sharing. — The  obstacles  which  beset  indus- 
trial co-ojjeration  are  not  encountered  by  the  scheme  of 
Profit-sharing,  which  has  been  highly  recommended  by 
many  writers  and  which  has  been  undertaken  of  late  years, 
not,  indeed,  on  a  large  scale,  but  in  numerous  instances. 
The  advantages  of  this  scheme,  illustrated  by  many  suc- 
cessful examples,  have  recently  been  stated  in  an  excellent 
book  by  Mr.  IST.  P.  Gil  man.  The  matter  is  one  of  eco- 
nomic and  administrative  detail,  too  minute  to  be  treated 
fully  in  an  elementary  work  of  this  character. 

The  object  sought  is  to  interest  workmen  in  increasing 
production  and  reducing  waste  and  breakage,  by  paying  to 
them  a  portion  of  the  employer's  profits.  It  is,  also,  held 
that  this  system  would  have  the  effect  to  promote  good 
feeling  between  the  laborer  and  the  em]3lo3'er,  and  to  di- 
minish the  resort  to  strikes  and  labor  contests. 

The  difficulties  of  profit-sharing  are  found  (1)  in  the 
smallness  of  the  amount  which  can  thus  be  distributed 
among  the  workmen,*  without  unduly  diminishing  the  em- 
ployer's interest  in  production;  {'Z)  in  the  suspicious  likely 
to  arise  regarding  the  employer's  good  faith,  in  declaring 


*  Suppose,  for  example,  that  an  employer  pays  in  wages  $200,000 
a  year,  and  realizes,  on  his  production,  a  profit  of  $15,000.  Were  he 
to  distribute  one-third  of  his  prolits,  this  would  amount  to  but  2i 
per  cent  on  his  "pay-roll."  A  workman  who  earned  $500  a  year, 
would  receive  $12.50  bonus.  Would  he  do  or  forbear  much,  for 
such  a  couslacration?    (Sec  par.  809.J 


POLITICAL  ECONOMY.  233 

the  amount  thus  subject  to  distribution,  unless  the  work- 
men, or  a  committee  of  them,  are  to  be  allowed  such  ac- 
cess to  the  books  and  accounts  as  few  business  men  would 
willingly  concede;  (3)  in  the  perplexing  question,  what 
should  be  done  in  the,  not  infrequent,  cases  where  the 
employer  realizes  a  loss. 

The  last  of  these  difficulties  is,  perhaps,  the  greatest. 
The  employer  is,  not  unnaturally,  disposed  to  hold  that,  if 
the  workmen  share  his  gains  in  good  years,  they  should 
also  sliare  his  losses  in  bad  years. 

206.  Consumptive  Co-operation.^I  have,  thus  far,  for 
simplicity  of  treatment,  directed  my  remarks  toward  co- 
operative enterprises  which  undertake  to  produce  goods  for 
the  market.  To  these  we  may,  perhaps,  apply  the  term. 
Productive  Co-operation.  There  is,  however,  a  very  large 
department  of  business  to  which  the  co-operative  principle 
can  be  applied  with  almost  indefinitely  less  difficulty  and 
risk.  This  department  of  business  relates  to  supplying 
consumers,  at  retail,  with  the  necessaries,  comforts  and 
luxuries  of  life.  This  kind  of  co-operation  may  properly 
be  called  Consumptive  Co-operation. 

The  distinction  between  productive  and  consumptive  co- 
operation may  be  expressed  as  follows.  In  productive  co- 
operation the  laborer  seeks  to  make  for  himself  an  income. 
In  consumptive  co-operation,  the  laborer  seeks  to  expend 
or  to  consume  that  income  to  the  best  advantage:  to  make 
each  dollar  of  his  earnings  go  as  far  as  possible  in  provid- 
ing subsistence  for  himself  and  family.  The  two  things 
do  not  necessarily  go  together.  A  man  might  (1)  earn 
his  income  by  working  for  an  employer,  and  expend  that 
income  through  a  co-operative  society;  or  (2)  he  might 
earn  his  income  in  a  co-operative  factory,  yet  expend  it  in 
purchases  from  grocers,  butchers,  and  shoe-dealers,  here 
or  there,  according  to  his  fancy  or  convenience;  or  (3)  he 


234  POLITICAL  ECONOMY. 

might  both  earn  his  income  as  a  member  of  one  (prodnc- 
tive)  co-operative  society  and  expend  it  as  a  member  of 
another  (consumptive)  co-operative  society. 

207.  The  Advantages  of  Consumptive  Co-operation.— 
Among  tlie  advantages  of  consumptive  co-ojDeration  may 
be  mentioned  the  following. 

1st.  The  certainty  of  business.  The  managers  know 
that  all  the  members  will  purchase  their  supplies  at  that 
store  or  shop.  It  is,  therefore,  possible  to  estimate  closely 
the  amount  of  trade  to  be  done,  and  the  quantities  of  the 
several  kinds  of  goods  which  will  be  required. 

2d.  The  saving  of  advertising -expenses.  It  follows 
from  the  above  that  the  managers  of  a  co-operative  store 
or  shop  are  relieved  from  all  expenditures  for  the  purpose 
of  attracting  trade.  They  not  only  do  not  need  to  adver- 
tise in  the  newspapers  or  on  the  "  dead  walls;"  they  are  not 
obliged  to  spend  money  for  plate-glass  windows  or  for  rose- 
wood counters  or  for  electric  lights.  They  can  have  their 
place  of  business  on  a  back  street,  in  plain  quarters,  at  a 
low  rent;  yet  their  customers  will  come  to  them,  all  the 
same. 

3d.  Avoidance  of  book-keeping  and  losses  by  bad  debts. 
In  Europe,  nearly  all  co-operative  stores  do  business  purely 
on  the  cash  principle.  No  one  is  allowed  to  take  goods 
out  of  the  shop  without  paying  for  them,  at  the  time.  All 
the  expense  of  recording  and  "posting"'  small  purchases, 
and  of  sending -out  and  collecting  small  bills,  is  thus 
avoided.  An  even  greater  advantage  is  found  in  escaping 
losses  by  bad  debts.  In  ordinary  retail  trade,  under  the 
credit  system,  so  common  in  the  United  States,  those  losses 
are  simply  enormous. 

208.  Practical  Experience  with  Consumptive  Co-opera- 
tion.— This  species  of  co-operation  has  had  no  inconsider- 
able degree  of  success  in  England,  in  the  way  of  shops  for 


POLITICAL  ECONOMY.  285 

the  sale  of  flour,  meats,  groceries,  dry-goods  and  other 
articles  of  domestic  consumption.  At  these  shops,  annual 
subscribers  or  members  of  the  association  buy  goods,  gen- 
erally at  the  ruling  prices  of  retail  trade,  always  for  cash. 
At  the  end  of  the  year  or  the  season,  the  profits,  after  de- 
ducting the  expenses  of  supervision  and  management,  are 
divided  among  the  members,  either  equally  or  in  propor- 
tion to  their  purchases.  The  latter  is  the  usual  rule.  At 
the  time  of  each  purchase,  a  member  receives  a  check, 
showing  the  amount  paid.  At  the  end  of  the  year  or  sea- 
son, he  brings  in  his  checks;  and,  upon  the  aggregate 
amount,  he  receives  a  dividend,  corresponding  to  the  profit 
upon  the  entire  business  done.  In  comparison  with  ordi- 
nary retail  trading,  under  the  credit  system,  a  co-operator 
ought,  with  good  management,  to  save  twenty  jjer  cent  of 
his  income.  Moreover,  he  ought,  in  this  way,  to  secure  a 
better  quality  of  goods,  as  no  one  has  any  interest  in  cheat- 
ing him. 

209.  American  Experience. — Here,  on  the  other  hand,  the 
scheme  of  consumptive  co-operation  has  not  been  very 
widely  applied  ;  and,  in  most  cases,  has  either  failed  or 
been  abandoned.  The  causes  of  this  small  success  have 
been  the  following : 

1st.  The  indifference  of  our  people,  even  of  the  poorest 
classes,  towards  small  savings.  The  average  American  will 
work  harder  than  the  man  of  any  other  nation  to  make  an 
income  ;  but,  in  expending  incomes,  we  are  the  most  care- 
less and  wasteful  people  in  the  world.  This  is  equally  true 
whether  we  are  buying  domestic  goods  at  the  store  or  using 
them  in  the  houseliold. 

2d.  The  national  passion  for  taking  credit.  An  Amer- 
ican feels  himself  insulted  if  he  is  informed  that  he  can- 
not carry  goods  out  of  a  shop  without  paying  for  them.  No 
matter  how  easy  it  would  be  to  bring  the  money  with  him, 
or  how  thoroughly  he  understands   the  disadvantages  of 


236  POLITICAL  ECONOMY. 

the  credit  S3'Stem,  he  yet  resents  auj  application  of  the  cash 
principle  in  his  own  case. 

3d.  The  popular  unwillingness  to  take  pains,  steadily  and 
persistently,  to  secure  a  proper  administration  of  trusts. 
The  same  defects  of  character  which  have  allowed  our 
municipal  affairs  to  fall  so  largely  into  the  hands  of  iiicom- 
jietent  or  unworthy  persons,  have  wrecked  many  of  the 
most  promising  co-oj^erative  enterprises  undertaken  in  this 
country.  Such  an  enterprise  starts  off  with  a  great  deal  of 
zeal  on  the  part  of  the  members  ;  the  best  men  are  put  in 
charge  ;  accounts  are  carefully  supervised  ;  the  buying  and 
selling  are  well  looked  after.  In  the  course  of  time,  the 
interest  wanes  ;  poorer  men  get  in  power  ;  the  administra- 
tion becomes  lax.  The  usual  result  is  either  that,  after  a 
few  years  or  months,  the  store  or  shop  is  shut  up  ;  or  else, 
the  last  manager  makes  an  offer  for  the  goods  and  fixtures, 
and  sets  up  business  for  himself.  Such  has  been  the  his- 
tory of  thousands  of  "union,"  ''granger"  or  "sovereigns 
of  industry"  stores,  in  the  United  States. 

There  is  no  essential  difficulty  regarding  consumptive  co- 
operation. Like  most  good  things,  however,  it  is  only  to 
be  had  with  labor  and  pains.  "Whenever  any  considerable 
number  of  people  care  enough  about  the  advantages  of  this 
system  to  give  it  thought,  effort  and  a  reasonable  portion 
of  time,  they  can,  in  this  way,  secure  for  themselves  an  im- 
portant economic  advantage. 


CHAPTEE  XXII. 
INTEREST. 

210.  The  Point  we  have  Reached. — Let  us  again  stop  to 
note  the  point  we  have  reached,  in  the  distribution  of  wealth. 
We  have  now  disposed  of  all  that  body  of  wealth  which 
constitutes  the  excess  of  price  over  the  cost  of  production. 
^Ye  have  seen  (Chapter  XVIII)  that  the  differences  in  pro- 
ductiveness existing  among  the  several  grades  of  soil, 
actually  contributing  to  the  supply  of  the  market,  give  rise 
to  a  surplus,  in  the  case  of  the  crops  raised  upon  all  the 
better  grades  of  land,  which  surplus  goes,  under  tiie  name 
of  reut,  to  the  owners  of  the  soil.  Secondly,  we  have  seen 
(Chapter  XX)  that  the  differences  in  productive  power 
existing  among  the  several  grades  of  employers,  actually  en- 
gaged in  conducting  the  business  of  the  community,  give 
rise  to  a  surplus,  in  the  case  of  all  goods  produced  by  the 
more  efficient  employers,  which  surplus  goes,  under  the 
name  of  profits,  to  those  employers.  The  wealth,  whose 
distribution  we  are  now  to  consider,  is  that  which  remains 
after  the  Surplus,  arising  from  the  two  causes  Just  men- 
tioned, has  been  disposed  of. 

The  body  of  wealth  thus  to  be  distributed  is,  as  we  have 
previously  stated  (par.  165),  equivalent  to  that  which  -wcmld 
have  leen  produced,  had  all  the  labor  and  capital  engaged 
in  production  been  applied  to  soils  of  the  lowest  grade 
actually  cultivated  (or  to  the  jjroduce  of  such  soils);  and 
been  so  applied  under  the  dn-ection  and  control  of  em- 
ployers of  the  lowest  grade  of  industrial  efficiency.     The 

337 


238  POLITICAL  ECONOMY. 

body  of  wealth,  thus  made  up,  is  to  be  distributed  among 
two  classes  of  industrial  agents,  viz.,  capitalists  and 
laborers.  To  no  part  of  this  has  either  the  landlord  or  the 
employer  any  economic  claim.  Both  these  parties  received 
all  they  were  entitled  to,  when  they  carried  away  the  sur- 
plus which  represents  the  excess  of  price  over  cost.  All 
that  enters  into  the  cost  of  production  consists  of  the  exer- 
tions and  sacrifices  of  capitalists  and  laborers ;  and  these 
two  classes  are  entitled  to  divide  among  themselves,  in  one 
proportion  or  another,  all  that  part  of  price  which  rep- 
resents the  cost  of  production. 

211.  Capital. — In  Chapter  VIII,  we  sought  to  describe 
the  origin  and  the  industrial  office  of  capital.  It  was  there 
shown  that  capital  arises  wholly  out  of  savings.  In  this 
fact  is  found  an  abundant  justification  for  the  claim  of  the 
individual  to  the  full  use  and  enjoyment  of  his  capital. 
If  a  man's  wealth  is  his  to  spend,  it  is  equally  his  to  save. 
If  there  be  any  difference  between  the  right  of  a  man  to 
the  wealth  he  is  to  spend  and  the  right  of  another  man 
to  the  wealth  he  is  to  save,  that  difference  is  in  the  favor  of 
the  latter,  since  the  saving  and  accumulation  of  capital 
is,  by  general  admission,  greatly  for  the  advantage  of  the 
community,  affording  the  means  for  carrying-on  and  en- 
larging production. 

212.  Interest. — The  economist  applies  the  term,  interest, 
to  that  part  of  the  product  of  industry  which  constitutes 
the  proj)er  economic  return  to  the  caj)ital  employed  in  pro- 
duction. That  term  is  equally  used,  whether  the  owner  of 
capital  himself  employs  it  in  production,  or  loans  it  to 
another,  to  be  by  him  employed.  In  the  latter  case,  there 
is  an  actual  payment,  by  the  debtor  to  the  creditor,  of  a 
certain  amount,  under  the  name  of  interest,  as  the  con- 
sideration for  the  loan.  In  the  former  case,  the  amount 
which  the  economist  considers  as  interest  is  not  distinctly 


POLITICAL  ECONOMY.  239 

separated  and  paid  over  under  that  name.  But  it  is  there, 
all  the  same  ;  and  should  always  be  so  distinguished  in 
economic  reasoning. 

213.  The  Right  to  Interest. — The  right  to  interest  is 
found  in  tlie  right  to  capital.  We  have  said  that  if  a  man 
has  a  right  to  wealth  in  order  to  spend  it,  he  has  equally  a 
right  to  wealth  in  order  to  save  it.  Likewise,  if  a  man  has  a 
right  to  wealth  which  he  has,  by  self-denial  and  sacrifice, 
saved,  he  has  the  right  either  to  use  it,  himself,  in  further 
production,  or  to  receive  the  proper  fruits  of  it  from  another, 
who  may  wish  to  use  it  in  production.  Strangely  enough, 
this  right  was  for  many  centuries  denied  among  Christian 
nations.  The  grounds  for  this  denial  will  be  given  in  the 
next  paragraph. 

214.  Objections  to  Usury. — Until  within  two  or  three 
centuries,  "  usury,"  or  the  taking  of  interest  upon  loans, 
was  forbidden  in  many  countries,  of  which  we  may  take 
England  as  an  example.  One  reason  for  this  was  doubt- 
less found  in  the  prohibition,  in  the  Old  Testament,  of  the 
taking  of  usury  by  one  Hebrew  from  another.  But  this 
prohibition  of  usury  among  the  members  of  "the  peculiar 
people  "  was  clearly  one  of  the  means  resorted  to  for  keep- 
ing them  apart  from  their  idolatrous  neighbors  ;  and  was 
in  no  sense  intended  as  a  moral  precept  of  universal 
application. 

Another,  and  perhaps  more  influential,  reason  for  the  pro- 
hibition of  usury  was  found  in  a  mistaken  notion  regarding 
the  nature  of  the  transaction  involved.  This  mistaken 
notion  was  embodied  in  a  dictum  of  Aristotle, the  great  Greek 
philosoplier,  that,  inasmuch  as  money  does  not  produce 
money,  nothing  ought  to  be  exacted  for  the  use  of  money.* 

*  The  honor  of  having  first  exposed  the  fallacy  lying  in  Aristotle's 
(Jiclum  is  attributed  to  John  C  alvin 


240  POLITICAL  ECONOMY. 

The  error  liere  lies  in  the  assumption  that  interest  is  paid 
for  the  use  of  money  ;  whereas,  in  fact,  interest  is  paid  for 
the  use,  not  of  money,  but  of  capital.  Now,  though 
money  itself  does  not  produce  ''after  its  kind,'" most  of 
tlie  things  which  a  man  can  buy  with  money  do  produce 
after  their  kind.  If  a  man  borrows  money  and  witli  it  buys 
a  hundred  sheep,  those  hundred  sheep  may,  in  a  few  years, 
become  five  hundred.  If  a  man  borrows  money  and  with 
it  buys  grain,  that  grain  will,  if  duly  sown  and  cultivated, 
bring  forth  "some thirty,  some  sixty,  and  some  an  hundred 
fold."  If  a  man  borrows  money  and  with  it  buys  mer- 
chandise, he  may,  by  shrewd  selling,  make  twenty  or  thirty 
per  cent  upon  his  stock.  So,  we  see,  that,  if,  in  the  case  of 
every  loan,  money  were  actually  borrowed,  all  the  things 
which  should  be  judiciously  bought  with  that  money  might 
be  made  to  produce  "after  their  kind." 

In  the  vast  majority  of  cases,  however,  where  interest 
is  paid,  no  money,  at  all,  is  used  in  the  original  transaction. 
A  man  buys  a  house,  and  promises  to  pay  the  price,  at  some 
future  time,  ''with  interest,"  meanwhile.  Interest  upon 
what  ?  Interest  upon  money  ?  He  has  had  no  money.  The 
interest  promised  is  upon  capital,  invested  in  the  house.  A 
merchant  or  a  manufacturer  buys  a  stock  of  goods,  and 
gives  his  note  promising  to  pay  the  price,  "with  interest." 
Not  interest  upon  money,  for  money  was  not  used  in  the 
transaction  ;  but  interest  upon  capital,  in  the  form  of  mer- 
chandise or  materials,  which  have  been  entrusted  to  him 
and  out  of  which  he  expects  to  make  a  profit,  which  he  is 
to  share  with  the  owner  of  the  capital. 

In  spite  of  all  the  objections  of  the  schoolmen  and  the 
churchmen,  the  philosophers  and  the  common  people,  the 
taking  of  mterest  was,  about  the  middle  of  the  sixteenth  cen- 
tury, made  lawful  in  England,  although  public  opinion  and 
the  views  of  the  clergy  were  still  deeply  hostile  to  it.     But, 


POLITICAL  ECONOMY.  241 

while  the  law  allowed  interest  to  be  paid,  it  undertook 
to  fix  a  rate  above  which  interest  should  not  go;  and  simi- 
lar enactments  have  been  made  in  nearh^  all  countries,  and 
still  remain  the  rule  to  the  present  time.  Of  the  expediency 
of  sucli  restrictions  upon  the  rate  of  interest  we  shall  speak 
in  a  subsequent  paragrajih. 

215.  How  Much  Shall  the  Capitalist  Receive? — We 
have  seen  that  there  is  an  abundant  justification  of  interest 
in  the  fact  that  jiroduction  is  increased  b\'  the  use  of  capi- 
tal. How  much  of  this  increase  shall  go  to  the  owner  of 
the  capital  ?  Shall  he  receive  the  whole  amount  by  which 
production  is  so  increased?  I  answer:  (1)  This  will  not  be 
so  as  a  matter  of  course  ;  (2)  that,  in  fact,  the  amount  go- 
ing to  the  owner  of  capital,  as  interest,  is  only  a  part  of 
that  increase ;  (3)  that,  in  general,  the  amount  received  as 
interest  is  but  a  small  part  of  the  amount  by  which  wealth 
is  enhanced  through  the  use  of  additional  capital. 

What,  then,  determines  the  amount  which  shall  be  paid  as 
interest  ?  Properly  to  answer  this  question,  we  must  again 
ask,  Avhat  is  interest?  Interest  is  the  jyrice  paid  for  the 
use  of  capital.  What  determines  price,  in  any  and  in  all 
cases?  There  can  be  but  one  answer  to  this  question. 
Price  (par.  95)  is  ahvaj's,  only  and  wholly  controlled  by 
demand  and  supply.  The  price  paid  for  the  use  of  mone}^, 
interest,  is,  therefore,  entirely  a  matter  of  the  supply  of,  and 
the  demand  for,  capital.  Now,  the  supply  of  any  article 
being  determined,  price  must  fall  and  continue  to  fall  un- 
til the  demand  has  been  foiind  ivhich  tvill  take  up  the  last 
portion  of  that  supply.  This  is  what  happens  in  regard  to 
the  price  paid  for  the  use  of  capital,  that  is,  interest. 

216.  The  Process  Illustrated. — Let  us  illustrate  this  by 
reference  to  a  community  which  has  been  some  time  estab- 
lished in  its  present  seats,  and  in  which  large  amounts  of 
capital  have  already  been  applied  to  production.     Farms 


242  POLITICAL  BCOKOMY. 

have  be.en  oj^ened  and  cultivated  ;  but  there  is  atill  much 
good  land  which  might  be  cleared  of  timber,  and  there  is 
a  large  area  of  swamps,  rich  with  the  vegetable  n^ould  of 
centuries,  which  might,  by  the  application  of  labor  and 
capital,  be  drained.  Mines  have  been  opened  and  worked  ; 
but  there  are  still  richer  mineral  deposits,  deeper  down  in 
the  crust  of  the  earth,  or  higher  up  among  the  mountains, 
which  there  has  not  yet  been  capital  enough  to  reach. 
Wood  and  timber  have  been  cut  from  the  neighboring  for- 
ests ;  but  there  are  tracts  of  better  timber  which  could  only 
profitably  be  brought  to  market  through  the  construction 
of  a  tramway  or  railway.  Vegetable  and  animal  fibres  have 
been  spun  and  woven  for  clothing  ;  but  it  has  been  by  the 
spinning-wheel  and  the  hand-loom,  there  not  having  been 
capital  enough  to  build  dams  upon  the  rivers,  to  put  up 
mills  and  to  fill  them  with  machinery. 

217.  The  Last  Portion  of  the  Supply. — Now,  suppose  that 
capital,  to  the  value  of  ten  millions  of  dollars,  were  to  be 
made  available  for  the  use  of  the  community,  constituting 
the  present  supply  of  capital  for  loan.  Some  of  this  capital 
would  be  so  much  needed,  would  have  the  capability  of  so 
greatly  increasing  production,  that,  rather  than  not  have 
it,  the  borrowers  could  afford  to  pay  ISfc  per  annum.  If 
the  amount  which  was  needed  in  this  degree  was  ten  mil- 
lions, then  18^  would  be  the  rate  of  interest.  But  if  only 
three  millions  were  needed  in  this  degree,  18^  would  not 
be  the  rate  of  interest,  for  such  a  demand  would  not  take 
up  the  whole  supply.  There  might  be  other  enterprises, 
agricultural,  commercial,  manufacturing,  which  could  put 
additional  capital  to  so  good  a  use  that,  rather  than  not 
have  it,  the  persons  concerned  would  pay  1  Ifo.  If,  however, 
only  two  millions  more  were  needed  in  this  degree,  neither 
18^  nor  12'fo  would  be  the  rate  of  interest,  but  something 
less.     We  might  suppose  that  there  were  other  enterprises 


POLITICAL  EC0y02IT.  243 

which  could  afford  to  pay  lO.'t,  and  others,  still,  which 
could  afford  to  pay  8^  ;  but  neither  lO;'^  uor  Sfb  would  be 
the  rate  of  interest  unless  the  whole  supply  was  taken  up 
by  these  successive  demands.  That  result  might  not  be 
reached  without  applying  the  last  million  of  dollars  to 
enterprises  which  could  only  afford  to  pay  6fo.  This  being 
so,  6^  would  become  the  rate  of  interest,  not  for  that  'mil- 
lion alone,  hut  for  the  whole  ten  millions.  Those  who  could 
have  afforded  to  pay  18^  for  the  use  of  capital,  ratlier  than 
not  have  liad  it.  will  still  get  the  use  of  it  for  6^^. 

218.  The   Law  of   Interest. — The   rate   of   interest 

IS  DETERMINED  BT  THE  PRODUCTIVENESS  OF  THAT  LAST 
(considerable)  part  of  THE  SUPPLY,  WHICH  IS  AP- 
PLIED TO  INDUSTRY    "AT   THE   GREATEST  DISADVANTAGE." 

The  productiveness  of  this  portion  determines  the  price 
to  be  paid  for  the  whole.  If,  in  the  instance  above  given, 
the  supply  had  been  so  great  that  the  last  portion  of  the 
demand  (necessary  to  take  up  the  whole  supply)  had  to 
come  from  enterprises  which  could  only  affoi'd  to  pay  4ff, 
then  4^  would  have  been  the  rate  of  interest  on  the  entire 
body  of  capital. 

It  will  be  seen  that  the  capitalist  does  not  receive 
the  whole  amount  by  which  production  is  increased  through 
the  use  of  capital.  He  receives  that  whole  amount  only  in 
the  case  of  those  industrial  enterprises  from  which  proceed 
the  last  (considerable)  portion  of  the  demand  which  is 
necessary  to  take  up  the  supply.  In  all  other  cases,  the 
industrial  enterprises  concerned  derive  a  benefit  from  the 
employment  of  the  additional  capital,  for  which  they  pay 
only  in  part. 

219.  The  Inexpediency  of  Usury  Laws. — AVe  have,  I 
think,  gone  far  enough  in  our  subject  to  be  in  a  position 
to  see  the  inexpediency  of  laws,  such  as  exist  in  most  coun- 
tries and  in  most  states  of  the  American  union,  prescribing 


244  POLITICAL  ECONOMY. 

a  rate  of  interest  which  it  shall  not  be  lawful  to  exceed. 
The  reason  for  these  laws  is  found  in  the  feeling  that  it  is 
very  hard  that  persons  who  wish  to  use  capital  productively 
should  be  obliged  to  pay  a  high  price  for  its  use.  And  so 
it  is.  But  what  is  tlie  real  cause  of  tliis  hardship  ?  It  is 
that  capital  is  scarce  in  that  community.  The  rate  of 
interest  will  only  be  high  when  capital  is  scarce,  in  com- 
parison with  the  demand  for  its  productive  use. 

But,  if  the  scarcity  of  capital  is  the  trouble,  is  this  to  be 
cured,  or  is  it  to  be  made  worse,  bylaws  which  prevent  the 
owners  of  capital  from  getting  the  full  price  for  it  ?  Clear- 
ly, the  latter.  If  the  scarcity  of  capital  creates  a  high  price 
for  its  use,  the  true  way  to  cure  the  evil  is  to  let  that  price 
be  freely  paid  and  received.  Then,  every  one  who  is  in  a 
position  to  accumulate  capital  will  set  himself  to  do  so  with 
double  eagerness,  in  order  to  get  the  benefit  of  that  higli 
price.  Moreover,  men  in  other  communities,  where  capital 
is  more  plentiful,  will  send  their  capital  thither,  to  get  the 
higher  rate.  In  this  way,  the  painful  need  of  capital, 
which  is  indicated  by  excessive  interest,  will  be  supplied 
as  rapidly  as,  in  the  nature  of  the  case,  is  possible. 
A  high  rate  of  interest,  freely  allowed,  is  the  best  ai^d 
speediest  cure  for  the  evil  of  a  scarcity  of  capital. 

220.  Evasions  of  Usury  Laws. — I  have  spoken,  above,  of 
the  importance  of  allowing  interest  to  be  freely  and  openly 
paid,  whatever  the  rate  which  existing  economic  conditions 
may  determine.  As  a  matter  of  fact,  usury  laws  can  al- 
ways be  evaded,  in  any  one  of  many  ways.  This  may  be 
done  by  a  bonus,  or  premium,  upon  the  loan  ;  by  a  com- 
mission to  an  agent,  who  turns  over  the  greater  part  of  it 
to  the  lender,  as  extra  interest ;  by  selling  goods  at  a 
fictitious  price,  the  excess  over  the  real  price  being  in  the 
nature  of  extra  interest;  by  "dry  exchange,"  as  when  a 
note   is  made  payable  in  another  city,  and   '^' exchange" 


POLITICAL  ECONOMY.  245 

(pars.  1"34-1"2())  is  charged  for  bringing  tlie  money  home, 
although  in  fact  the  note  has  not  left  the  city  wiiere  the 
loan  was  made. 

The  effect  of  these  and  many  other  modes  of  evading 
usury  laws  is  simply  to  make  it  haixler  for  the  man  who 
already  finds  it  hard  enough  to  borrow.  They  really  enhance 
the  price  to  be  paid  for  the  use  of  the  capital  which  belongs 
within  the  community;  and  they  serve  as  a  great  obstacle 
to  bringing  in  capital  from  communities  on  the  outside. 
In  a  high  degree,  therefoi'e,  usury  laws  defeat  their  own 
object. 

221.  False  Interest:  Insurance  of  the  Principal. — We 
have  thus  far  spoken  as  if,  in  the  same  market,  there  could 
be  but  one  rate  of  interest  at  a  given  time.  Yet  we  know 
that,  in  any  market,  notes  are  discounted  every  day,  at 
varying  rates  of  interest.  How  is  this  ?  I  answer,  a  great  deal 
which  goes  under  the  name  of  interest  is  not  true  interest, 
but  is  in  the  nature  of  Insurance  upon  the  capital,  or  principal 
sum  lent. 

For  example,  a  capitalist  has  thirty  thousand  dollars 
which  he  intends  to  loan.  Ten  thousand  of  this  he 
"  places"  upon  a  "bottom  mortgage,"  at  b</o.  Here  he  has 
for  his  security  improved  real-estate,  which  is  worth  at  least 
twice  as  much  as  the  sum  lent.  This  5^,  then,  is  the  true  rate 
of  interest,  at  that  time  and  place.  With  another  ten  thou- 
sand dollars,  the  capitalist  buys  first-class  business-paper, 
bearing  6^  interest.  The  security  here  is  good  ;  yet  all  mer- 
chants are  liable  to  fail,  through  the  bankruptcy  of  others, 
through  embezzlement  by  their  clerks  or  cashiers,  or  througli 
some  tremendous  fall  of  prices.  Consequently,  an  insurance 
of  one  per-cent  is  here  demanded,  over  and  above  the  true 
rate  of  interest.  On  the  same  day,  the  capitalist  buys  ten 
tliousaiid  dollars  in  the  bonds  of  a  new  railroad  company, 
which  promise  7^  interest.     Here  the  investor  takes  the 


246  POLITICAL  ECONOMY. 

risk  that  the  railroad  may  not  prove  a  success,  either 
through  being  badly  located  or  being  badly  managed  ;  and 
for  this  risk  he  demands  an  insurance  of  two  per-cent,  per 
annum,  upon  tlie  principal. 

The  total  amount  of  this  false  interest  or  real  insurance, 
in  case  of  loans,  is  very  great.  On  the  very  day  wlien  Brit- 
ish "three  per-cents"  are  selling  at  par,  Russian  "five  per- 
cents"  and  Turkish  "ten  per-cents"  may  be  at  a  discount. 
The  man  who  lends  to  the  British  government  runs 
no  risk  worth  thinking  of.  The  man  who  lends  to 
the  Russian  government  runs  a  considerable  risk.  The 
man  who  lends  to  the  Turkish  government  runs  a 
frightful  risk.  On  the  very  day  when  fii-st-class  business- 
paper  is  discounted  at  5^,  the  notes  of  doubtful  firms  are 
being  "shaved "at  all  the  way  from  ten  to  twenty-five 
per-cent. 

222.  Extra-hazardous  Loans.— Speaking  generally,  the 
amount  promised  as  extra  interest  on  very  hazardous  loans 
and  investments,  is  less  than  the  proper  premium  of  in- 
surance for  the  risk  taken.  The  losses  through  such  loans 
and  investments,  in  any  considerable  term  of  years,  are 
enormous,  far  exceeding  the  value  of  the  extra  interest  re- 
ceived. The  people  who  make  such  loans  and  investments 
are  gambling  ;  and,  like  most  gamblers,  they  lose. 

Persons  who,  in  a  community  where  the  proper  rate  of 
interest  is  5^,  buy  bonds  which  promise  to  pay  ten  or  fifteen, 
do  not  commonly  act  upon  anything  like  a  real  judgment 
as  to  the  probabilities  that  the  bonds  will  be  paid  when 
due.  They  are  simply  tempted  beyond  what  they  are  able 
to  bear.  The  offer  of  an  extravagant  rate  of  interest  over- 
comes their  prudence.  They  buy  a  very  poor  tiling  be- 
cause they  can  buy  it  at  a  very  low  price;  and  almost 
invariably  find  they  have  been  cheated,  at  that.  They  re- 
ceive one  or  two  payments  of  interest,  which  the  managers 


POLITICAL  ECONOMY.  247 

make  in  order  to  hook  the  last  gudgeon  in  the  pool ;  and, 
after  that,  tlieir  bonds  are  mere  waste-paper.  No  prudent 
person  will  ever  invest  any  money  which  he  cannot  easily 
afford  to  lose,  in  any  enterprise  which  promises  a  rate  of 
interest  greatly  above  that  Avhich  is  paid  by  well-established 
business  houses. 

223.  Differing  Rates  of  Interest  in  Different  Markets. — 
AVe  have  said  that,  iu  tlie  same  market,  at  the  same  time, 
there  is  but  one  rate  of  true  interest,  the  apparent  differ- 
ences being  due,  either  to  payments  in  the  nature  of  insur- 
ance upon  the  principal,  or  else  to  the  effects  of  ignorance, 
misrepresentation,  etc.  Broadly  speaking,  this  is  true. 
In  different  markets,  however,  at  the  same  time  there  may 
be  widely  differing  rates  of  interest.  Thus,  twenty  years 
ago,  the  loan  of  capital  could  be  obtained,  upon  what  was 
locally  regarded  as  good  security,  for  4^  in  London,  as 
freely  as  for  Qfo  in  New  York ;  or  8^  in  Chicago  ;  or  12^ 
in  Iowa  or  Kansas. 

Whence  these  differences  ?  In  some  degree,  doubtless, 
these  successive  additions  of  interest,  as  capital  passed  west- 
ward, were  in  the  nature  of  insurance.  \n  each  case,  the 
security  might  be  as  good  as  could  ordinarily  be  obtained 
in  that  community.  Security,  however,  is  a  relative  term : 
what  would  be  deemed  ample  security  in  one  place  might 
not  pass  the  scrutiny  of  lenders,  without  question,  in  an- 
other. Generally  speaking,  the  older  a  country  is,  the 
greater  the  permanence  of  economic  relations  ;  the  more 
does  industry  settle  down  within  traditional  limits ;  the 
higher  is  the  value  assigned  to  commercial  reputation  ;  the 
more  carefully  are  the  men  selected  who  are  to  control  the 
agencies  of  production  and  trade ;  the  fewer  are  the 
chances  of  revolutionary  changes  in  business. 

224.  Disinclination  of  Capital  to  Emigrate. — But  not 
all,  or  even  the  greater  part,  of  the  ditt'erences  which  have 


248  POLITICAL  ECONOMY. 

been  noted,  are  due  to  tliis  caiit;e.  It  is  the  disinclination 
of  capital  to  emigrate,  which  allows  such  wide  differences 
in  local  rates  of  interest.  In  part,  this  disinclination  is 
due  to  a  suspicion  that  strangers  may  not  be  fairly  dealt 
with  by  courts  and  by  officers  of  the  law,  in  case  of  seiz- 
ures or  foreclosures.  In  part,  it  is  due  to  a  fear  of  war, 
wliich  would  necessarily  cause  a  suspension  of  interest-pay- 
ments, if  not  forfeiture  of  the  principal.  In  part,  it  is 
due  to  the  fact  that  investments  made  at  a  distance  must 
generally  be  made  through  an  agent,  whose  bad  faith  or 
weak  Judgment  may  cause  the  loss  of  the  whole  sum  in- 
vested. 

The  main  cause,  however,  of  the  disinclination  of  capital 
to  emigrate  is  found  in  (1)  the  inertia  of  capitalists,  mak- 
ing them  ready  to  accept  lower  rates  upon  the  spot  than 
could  be  obtained  through  effort  and  inquiry  at  a  distance; 
and  in  (2)  the  ignorcmce  of  capitalists,  from  the  necessary 
lack  of  information  as  to  the  rates  of  interest  prevailing 
elsewhere. 

The  disinclination  of  capital  to  emigrate  is  something 
which  changes  greatly,  with  changing  moods  of  tlie  public 
mind.  At  times,  the  owners  of  capital  are  buoyant  and  con- 
fident, and  feel  little  liesitatiou  in  investing  their  capital  at 
a  distance.  At  times,  the  owners  of  capital  are  even  cred- 
ulous; and  are  readily  "taken  in"  by  plausible  jn'omises 
and  prospectuses  from  abroad. 

The  disinclination  of  capital  to  emigrate,  moreover, 
tends  to  diminish  from  age  to  age,  as  the  communication 
of  news,  by  post  and  telegraph,  becomes  easier;  as  the  peo- 
ples of  different  cities  and  different  countries  know  more 
about  each  other  ;  and  as  nations  learn  to  treat  foreigners 
with  greater  fairness.  Consequently,  there  is  a  constant 
tendency  to  reduce  local  differences  in  the  rates  of  interest. 


POLITICAL  ECOFOMT.  249 

225.  Contrasts  between  Rent  and  Interest. — We  are  now 

in  a  position  to  eoutnist  rent  and  interest  with  each  other, 
in  certain  important  respects. 

First,  we  have  seen  (par.  173)  that  the  whole  tlieory  of 
rent  rests  on  the  assumption  that  there  is  a  body  of  no-rent 
lands.  These  serve  as  The  Base,  from  which  to  measure 
upwards  the  successive  degrees  of  productiveness  of  lands 
which  bear  a  rent. 

In  the  theory  of  capital,  there  is  nothing  corresponding 
to  this.  The  economist  does  not  find  any  no-interest  capi- 
tal. In  theory,  all  capital  bears  an  interest ;  and  all  por- 
tions of  capital  bear  an  equal  interest.  If  one  portion,  in 
fact,  brings  its  owner  no  interest,  or  brings  an  interest  be- 
low that  obtained  by  other  portions,  this  is  because  of  ig- 
norance or  accident  or  fraud  or  mistaken  calculations.  It 
is  not  due  to  the  nature  of  the  capital  itself. 

226.  The  Rate  of  Interest  Tends  to  a  Decline.— The 
second  marked  difference  between  interest  and  rent 
may  be  expressed  as  follows:  Rent  tends  to  increasf; 
witli  the  increase  of  population  and  with  the  prog- 
ress of  wealth.  On  the  contrary,  interest  tends  to  de- 
cline. This  is  because  the  amount  of  capital  which  can 
be  created,  in  any  country,  is  not,  like  the  amount  of  land, 
a  fixed  quantity.  There  is  no  natural  limit  to  the  wealtli 
which  can  be  saved  and  accumulated,  within  any  district, 
by  the  industry  and  frugality  of  an  intelligent,  skilful  and 
enterprising  people.  Even  within  a  single  generation,  we 
have  seen  the  rate  of  interest  decline  in  New  England  from 
six  per-cent  to  four  and  a  half,  and  even  four  ;  while,  in 
many  parts  of  the  West,  the  decline,  during  the  same  pe- 
riod, lias  been  greater.  In  England,  interest  upon  the  best 
security  does  not  now  exceed  three  per-cent;  while  addi- 
tional capital  applied  to  the  land  hardly  returns  as  much 
as  two  per-cent. 


250  POLITICAL  ECONOMY. 

227.  A  Popular  Fallacy.— \Ye  close  tliis  chapter  with  u 
reference  to  an  erroneous  notion  whicli  is  always  likely  to 
be  widely  spread  in  certain  stages  of  industrial  society. 
This  is  the  notion  that  the  rate  of  interest  can  be  artifi- 
cially lowered  by  the  manufacture  of  large  amounts  of 
paper-money.  What  we  have  seen  regarding  the  nature 
of  interest  ought  to  show  tlie  fallacy  of  this  opinion. 

A  scarcity  of  capital  means  a  deficient  supply  of  tools, 
implements  and  machines  ;  of  live-stock  ;  of  materials  for 
manufacture;  of  food  and  clothing,  to  support  men  while 
laboring  on  public  works,  or  otherwise  engaged  in  pro- 
ductive industry.  It  means  that  much-needed  roads  and 
bridges,  wharves  and  warehouses,  dwellings  and  barns, 
mills  and  factories  have  yet  to  be  constructed,  with  scanty 
means  for  doing  it.  A  more  bountiful  supply  of  paper- 
money  is  not  going  to  bring  these  things  into  existence  ; 
and,  consequently,  can  do  nothing  to  meet  the  real  wants 
of  the  community.  On  the  contrary,  by  unduly  exciting 
speculation  and  causing  great  and  rapid  fluctuations  in 
prices  (par.  144)  an  excess  of  paper-money  is  certain  to 
disturb  and  impair  production,  and  to  divert  consumption 
from  more  to  less  useful  objects. 


CHAPTER  XXIII. 
WAGES. 

228.  The  Residual  Share  of  the  Product  of  Industry.— 

We  have  now  reached  that  sliare  of  the  product  of  industry 
to  which  I  venture  to  apply  the  term  ResidiuiL  I  call 
wages  the  residual  share,  not  because  it  is  the  last  in  order 
of  treatment,  but  because,  in  my  view,  wages  comprise  the 
residue  (or  all  which  is  left)  of  the  product  of  industry  after 
the  three  other  shares  have  been  taken  out,  the  amount  of 
those  three  shares  being  determined  by  economic  laws 
which  I  have  sought  to  state. 

We  have  seen  (par.  165)  that  the  landlord  and  the  em- 
ployer divide  between  them  all  that  part  of  the  product  of 
industry  which  we  call  the  Surplus.  That  is,  rent  and 
profits  together  take  all  of  price  which  is  in  excess  of  the 
cost  of  production.  This  leaves  the  capitalist  and  the  la- 
borer to  divide  between  themselves  all  of  price  which  repre- 
sents cost  of  production. 

Starting  from  this  point  in  the  last  chapter,  we  inquired 
Avhat  part  of  this  total  amount  the  ca})italist  should  receive. 
We  found  that  the  sum  which  sliould  go  to  capital,  as  in- 
terest, is  determined  by  the  productiveness  of  the  last  (con- 
siderable) portion  of  the  supply  of  capital  which  finds  a 
borrower.  The  rate  of  interest,  thus  determined,  is  paid 
upon  all  the  capital  in  the  market,  and  no  more,  except  so 
far  as  risks  to  the  principal  sum  lent  require  additional 
payments,  in   the  nature  of  Insurance.     Interest    liaving 

251 


252  POLITICAL  ECONOMY. 

been  tlms  taken  out  of  the  product  of  industry,  all  that  re- 
mains belongs  to  the  laboring  class,  as  wages. 

229.  A  Position  of  Vantage. — If  the  laborer's  position, 
in  the  distribution  of  wealth,  is  really  that  of  the  residual 
claimant,  that  position  is  clearly  one  of  vantage.  If  I, 
with  three  others,  own  the  whole  of  a  thing,  and  if  the 
shares  of  my  fellows  are  fixed,  by  agreement  or  by  law,  any- 
thing which  makes  that  thing  more  valuable,  as  a  whole, 
inures  entirely  to  my  benefit.  Now,  we  shall  see  in  what 
follows  (taken  in  connection  with  what  was  said  in  Chapters 
VI  and  VII,  regarding  the  efficiency  of  labor),  that  it  is 
always  within  the  power  of  the  laboring  class,  by  greater 
energy,  carefulness  and  skill,  to  increase  the  product  of 
industry.  It  is,  therefore,  always  in  their  power  to  improve 
their  own  condition;  and,  if  they  duly  look  after  their  own 
interests  in  distribution,  they  will  reap  the  entire  fruit  of 
whatever  additional  exertions  and  sacrifices  they  may  make 
in  production.  This  certainly  is  the  most  hopeful  view 
that  can  possibly  be  taken  of  the  economic  position  of  the 
laborer. 

230.  The  Productiveness  of  Labor  is  the  Source  of  Wages. 
— When  an  employer  hires  labor,  it  is  wholly  with  a  view  to 
the  product  of  that  labor.  He  hopes  that  the  product  will 
be  large  enough  to  leave  a  profit  to  himself.  We  have  seen 
(par.  190)  that  there  are  always  some  employers  who  are 
destined  to  be  disappointed  in  this  expectation :  employers, 
who,  after  all  their  care,  pains  and  anxiety,  will  realize  no 
profits,  properly  so  called.  Competition  will  surely  bring 
this  about.  It  will  inevitably  bring  prices  down  to  the 
point  where  the  least  eflBcient  employers  supplying  the 
market  can  only  get  back  what  they  have  expended,  with  a 
bare  living  for  themselves:  a  living  no  better  than  that  ob- 
tained by  the  more  fortunate  members  of  the  laboring  class. 

But  whether  any  individual  employer  does  or  does  not 


POLITICAL  ECOKOMY.  253 

realize  a  profit,  it  is  only  in  this  expectation  that  he  employs 
labor  at  all;  and  it  is  only  ont  of  the  product  of  labor  that 
he  can  hope  to  realize  a  profit.  All  employers  in  the 
market,  then,  competing  among  themselves  for  the  profits 
of  employment,  the  price  of  labor,  i.e.  wages,  will,  if  the 
laborers  properly  look  after  their  own  interests,  rise  to  the 
point  which  is  determined  by  the  prodnctiveness  of  labor 
at  the  hands  of  the  least  competent  employers.  All  which 
these  employers  can  produce  by  means  of  labor,  they  will 
be  obliged  to  pay  over  in  wages,  subject  only  to  the  deduc- 
tion of  rent  and  interest.  If,  then,  the  productiveness  of 
that  labor  be,  by  any  cause,  increased,  the  employers  can 
afford  to  pay  correspondingly  higher  wages;  and  this  they 
will  be  compelled  to  do,  if,  as  we  said,  the  laborers  properly 
assert  their  own  interests. 

The  rate  of  wages,  determined  by  the  productiveness  of 
labor  at  the  hands  of  the  least  competent  employers,  will 
become  the  rate  of  wages  for  all  labor.  The  more  efficient 
employers  will  pay  the  same  wages  for  labor;  and  will  make 
a  profit  corresponding  to  the  productiveness  of  labor  under 
their  superior  management.    Tliis,  then,  is  the  law  of  wages. 

231.  How  the  Productiveness  of  Labormay  be  Increased. 
— It  is  not  necessary  to  repeat  here  what  has  been  said  at 
so  much  length  in  Chapters  VI  and  VII.  We  have  there 
enumerated  the  principal  elements  which  make  up  the 
efficiency  of  labor.  Most  of  those  elements,  it  is  clear,  are 
largely  within  the  control  of  the  laborers  themselves.  If 
they  will  put  more  zeal  into  their  work;  if  they  will  be 
more  careful  of  materials  and  machinery;  if  they  will  study 
their  trades  and  make  themselves  thorough  masters  of  their 
business,  they  can  greatly  increase  their  productive  power. 

Doubtless  the  chief  reason  why  the  laboring  classes,  as  a 
whole,  have  not  been  more  anxious  and  earnest  to  increase 
their  industrial  efficiency,  is  because  they  have  failed  fully  to 


254  POLITICAL  ECONOMY. 

appreciate,  in  many  cases  have  failed  at  all  to  apprehend, 
the  true  relation  between  the  productiveness  of  labor  and 
the  rate  of  wages.     For  this  failure  there  are  two  causes. 

First.  They  have  been  taught,  and  they  have  generally 
believed,  that  their  ^vages  came  out  of  a  fund  *  which  the 
employing  class  held  for  their  benefit,  instead  of  their 
wages  being  their  own  creation. 

Secondly.  Because  they  worked  for  wages  stipulated  in 
advance  they  have  thought  that  all  they  had  to  do  was  to 
earn  their  wages  for  that  piece  of  work. 

But  why  tvere  the  dijmlated  wages  no  higher?  Because 
the  productiveness  of  their  labor,  as  understood  by  their 
employers,  was  no  greater.  An  increase  of  their  productive- 
ness would,  of  course,  not  give  them  liigher  wages  under 
their  present  contract;  but  it  would  constitute  a  sufficient 
economic  reason  for  higher  wages  under  their  next  contract, 
and  under  all  succeeding  contracts.  Employers,  I  repeat, 
wall  always  be  obliged  to  pay  wages  corresponding  to  the 
(known  or  anticipated)  productiveness  of  labor  at  the  hands 
of  the  least  competent  employers;  and  laborers  have  only 
to  cause  it  to  be  known,  or  reasonably  anticipated,  that 
their  labor  will  be  more  productive,  in  order  to  secure  higher 
"wages. 

All  the  foregoing  reasoning  assumes,  as  we  gave  notice  in 
par.  162,  that  perfect  competition  exists  throughout  indus- 
trial society.  We  shall  see,  in  the  next  chapter,  what  is 
required  for  perfect  competition;  and  what  are  the  con- 
sequences of  a  failure  to  meet  those  requirements. 

232.  Particular  Wages.— What  we  have  thus  far  said, 
concerning  wages,  has  all  borne  upon  the  question,  what 
part  of  the  total  product  of  industry  sliall  go  to  the  labor- 
ing class  as  a  whole.     To  this  subject  we  might  apply  the 

*  Called  by  most  English  aud  American  economists  The  "Wages 
Fund. 


Political  economy.  255 

term.  General  Wages.  Tliere  remains  to  be  briefly  con- 
sidered the  subject  which  we  may  call  Particnilar  Wages, 
under  which  we  discuss  the  question  wliy  wages  in  one  em- 
ployment are  higlier  or  lower  than  in  other  employments; 
and  attempt  to  account  for  such  differences. 

The  range  of  wages,  between  highest  and  lowest,  in  any 
community,  even  among  able-bodied  men,  is  very  great. 
The  theoretical  minimum  of  wages  is,  of  course,  the  amount 
necessary  to  keep  the  laborer  alive  and  in  strength  to  work, 
and  also  to  rear  children  to  take  his  own  place  in  the  in- 
dustrial order.  At  least  as  much  as  this  the  employing 
class  must  pay  for  any  kind  of  labor,  because,  otherwise, 
they  could  not  long  have  labor  at  all. 

This  minimum  of  wages,  viz.,  necessary  subsistence,  is 
hardly  known  at  all  in  this  country.  There  are  few  Ameri- 
can families,  which  have  not  lost  the  "  bread-winner,"  but 
could  actually  support  life  upon  from  one-half  to  one-third 
of  the  amount  which  they  have  to  spend.  Of  this  any  one 
can  readily  satisfy  himself  by  observing  how  the  Italians 
and  people  from  other  foreign  countries,  where  a  low  stand- 
ard of  living  prevails,  eat,  dress  and  house  themselves,  when 
they  first  come  among  us.  It  is  not,  then,  necessary  that 
the  actual  minimum  of  wages  shall  be  equal  only  to  tiie  cost 
of  bare  subsistence.  Whether  it  shall  be  so,  or  not,  depends 
upon  causes  which  are  mainly  within  the  control  of  the 
working  classes  themselves. 

In  the  distribution,  among  the  several  classes  of  laborers, 
of  that  total  amount  of  wealth  which  the  whole  body  of 
laborers  are  to  receive,  demand  and  supply  are  the  all-ef- 
fective agents.  Generally  speaking,  the  lowest  wages,  as 
among  able-bodied  men,  are  received  by  those  who  have 
nothing  but  muscular  strength  to  offer  ;  who  are  able  to 
lift  and  carry  heavy  loads,  to  strike  powerful  blows  or  to 
wield  the  shovel  for  hours  without  tiring;  but  who  have 


266  POLITICAL  ECONOMY. 

little  general  intelligence  and  no  technical  skill.  Such 
persons,  who  are  commonly  spoken  of  as  day-laborers 
(whether  actually  employed  by  the  day  or  not),  generally 
receive  the  lowest  wages  paid.  This  is  simply  because  the 
supply  of  such  labor  is  very  abundant.  The  great  major- 
ity of  all  who  grow  to  manhood  can  do  this  sort  of  work. 
It  is  only  as  a  man  is  able  to  do  some  kind  of  work  which 
the  great  majority  of  laborers  cannot  do,  that  he  lifts  him- 
self out  of  this  class,  and  his  wages  rise  above  those  of  a 
common  laborer. 

How  high  they  shall  rise,  will  depend  (1)  npon  the  de- 
mand for  the  special  service  which  he  is  qualified  to  render, 
and  (2)  upon  the  number  of  persons  who  compete  with 
him  for  the  privilege  of  rendering  that  service.  A  dis- 
tinguished economist  once  told  me  that  he  had  seen,  in 
the  books  of  a  brass-manufacturing  concern  of  this  country, 
entries  which  established  the  fact  that  a  certain  brass- 
moulder  had  for  a  long  time  received  wages  averaging 
eighteen  dollars  a  day.  All  around  this  man,  were  other 
moulders,  men  of  great  skill,  who  were  glad  to  earn  four 
or  five  dollars  a  day.  This  man  was  able  to  do  something 
which  they,  with  all  their  trying,  could  not  effect.  Every- 
thing which  he  touched  took  on  a  grace,  which  was  worth 
money  in  the  market.  The  ordinary  brass-moulders,  again, 
were  receiving  wages  two  or  three  times  as  large  as  those 
received  by  the  day  laborers  and  heavy  porters  of  the 
same  factories.  This  was  because,  and  only  because,  with 
a  given  demand  for  such  work,  the  supply,  i.e.  the  num- 
ber, of  persons  capable  of  doing  it,  was  closely  limited. 
That  work  requires  great  nicety  of  touch,  accuracy  of  per- 
ceptiou,  sound  judgment  and  executive  force.  The  man 
who  is  to  do  it  well,  must  not  only  have  a  good  hand  and  a 
good  eye  ;  but  he  must  also  have  a  good  head.  A  stupid, 
unobservant  person,  is  not  fit  to  undertake  it ;  and  no  em- 


POLITICAL  ECONOMY.  257 

ployer  could  afford  to  allow  snoli  a  pei-son  to  do  the  work, 
were  lie  willing  to  do  it  for  nothing. 

Had  we  such  a  s\'stem  of  public  education  as  wo  ought 
to  have,  by  which  all  the  powers  and  faculties  of  the  child 
were  called  into  exercise  and  taught  to  work  together  har- 
moniously and  enthusiastically,  much  of  the  difference  that 
now  exists  among  the  wages  of  the  laboring  class  would 
disappear;  the  number  of  those  who  were  capable  of  per- 
forming the  higher  parts  in  production  would  be  vastly 
increased. 

"We  must  put  altogether  aside  the  notion  that  labor  is 
compensated  according  to  some  scale  of  dignity  or  moral 
worth.  Some  kinds  of  work,  which  peculiarly  require  the 
use  of  the  noblest  of  the  human  faculties,  such  as  taste  and 
imagination,  or  which  bring  into  special  exercise  the  great- 
est of  the  human  virtues,  such  as  patience,  fidelity  and  the 
spirit  of  self-sacrifice,  are  more  meanly  compensated  than 
others  which  make  no  such  requirement.  It  is  all  a  question 
of  demand  and  supply.  Some  occupations  which  are  pe- 
culiarly loathsome  and  revolting  in  their  character  bring 
very  high  wages,  because  the  nature  of  the  work  to  be  done 
diminishes  the  number  of  those  who  will  offer  themselves 
for  the  service. 

Dangerous  employments  sometimes  yield  very  high  wages. 
This  should  always  be  so;  but  the  multitude  of ''broken 
men"  in  every  community,  that  is,  men  who  have  been 
made  desperate  or  reckless  by  misfortunes  or  by  bad  habits, 
constitute  a  reservoir  from  which,  at  any  tim(^,  may  be 
drawn  those  who  will  render  the  most  dangerous  services 
at  wages  which  affoi-d  no  adequate  compensation  for  the 
risk  to  life  and  limb.*     Just  so  far  as  the  moral  and  intel- 

*The  reader  may  be  interested  to  glanee  over  the  ligmes  wliich 
sliow  the  comparative  hardships  and  exposure  to  accidents  and  disease 
in  different  kinds  of  labor  ;ird  professional  service.    Doctor  Neisou,  an 


258  POLITICAL  ECONOMY. 

lectual  condition  of  the  laboring  class  is  improved,  and, 
especially,  as  the  vice  of  drnnkenness  is  banished,  will  those 
laborers  who  are  required,  for  the  benefit  of  society,  to  per- 
form work  which  is  dangerous,  painful,  or  exceptionally 
disagreeable,  receive  additional  compensation  therefor. 

233.  The  Wages  of  Women. — A  great  deal  of  attention 
has  been  directed,  in  these  late  days,  to  the  wages  received 
by  women  who  are  obliged  to  leave  their  homes  and  go  into 
''the  market  for  labor,"  to  earn  their  bread;  and  a  great 
deal  of  vei'y  bad  reasoning  has  been  indulged  in  npon  this 
subject.  On  the  one  side,  philanthropists  and  sentimental- 
ists have  talked  of  what  working  women  ought  to  receive, 
as  if  the  question  of  wages  were  an  ethical  instead  of  an 
economic  one;  and  have  railed  at  employers  because  they 
paid  women  at  the  rates  current  in  the  market,  as  if  it  were 
the  business  of  employers  to  do  anything  else.  On  the  other 
hand,  economists  have  been  too  apt  to  sneer  at  efforts  to  ad- 
vance the  condition  of  working  women;  and  have  talked  of 
"demand  and  supply,"  as  settling  the  whole  question  of 
women's  wages,  without  recognizing  the  fact  that  tJiere  are 
moral  and  intellectual  elements  in  sufply  and  in  demaiid, 
which  are  subject  to  man's  volition  and  conscious  activity. 

emiuent  actuary,  states  that  the  mean  annual  mortality  in  England, 
between  twenty-live  and  sixty-five  years,  is,  in  the  clerical  profession, 
1.13  per  cent;  in  the  legal,  1.57;  in  the  medical,  1.81.  In  domestic 
service,  the  mortality  among  gardeners  is  only  .93  per  cent;  among 
grooms,  1.26;  among  coachmen,  1.84.  Of  the  several  branches  of 
manufacture,  paper  shows  a  mean  mortality  of  1.45;  tin,  1.61;  iron, 
1.75;  glass,  1.83;  load,  2.24;  earthen -wai-e,  2.57.  Among  the  dif- 
ferent kinds  of  mining,  iron  shows  a  mean  mortality  of  1.80;  tin, 
1.99;  lead.  2.50;  copper,  3.17. 

In  some  of  these  cases,  the  extraordinarily  high  mortality  is  due  to 
the  poisonous  fumes  which  are  given  out;  in  others,  to  the  fact  that 
the  air  is  tilled  with  fine  particles,  which  penetrate  the  bronchial 
tubes  and  lungs,  causing  early  death;  in  others,  to  the  intense  heat 
in  which  the  work  has  to  be  done. 


POLITICAL  ECONOMY.  259 

The  suppl}^  of  women's  labor  is,  unfortunatel}-,  not  greatly 
within  control.  That  depends  chiefl}^  upon  the  needs  of 
women.  Generally  speaking,  women  will,  if  they  are  free 
to  choose,  prefer  to  remain  within  the  household,  devoting 
themselves  to  making  the  home  comfortable  and  beautiful, 
rearing  and  training  the  young,  and  enjoying  social  pleas- 
ures. If  women  are  driven  out  into  the  market  for  labor, 
it  will  generally  be  because  of  misfortunes,  the  sickness  or 
death  of  ''  the  bread-winner,"  or  the  scantiness  of  the  wages 
which  tJie  father  or  brother  is  able  to  earn. 

But  while  the  supply  of  women's  labor  is,  thus,  not  greatly 
subject  to  control,  the  demand  for  that  labor  can  be  very 
much  influenced  by  liuman  choices.  We  have,  in  our  day, 
seen  an  enormous  extension  of  the  field  open  to  women, 
which  has  been  due  to  a  better  understanding  of  the  sul)- 
ject ;  to  the  improved  education  of  women  themselves  ;  and 
to  a  more  generous  consideration  of  the  wants  of  those, 
of  this  sex,  who  are  obliged  to  earn  their  own  bread.  This 
good  work  can  go  on  almost  indefinitely.  Many  an  em- 
ployer could,  if  he  saw  a  little  more  clearly  on  the  subject, 
and  felt  a  little  more  deeply  concerning  it,  i-eadily  find  a 
place  for  women  in  his  works ;  and  every  such  instance 
would  make  it  more  easy  for  women  to  find  room  in  other 
establishments. 

Nor  is  it  alone  the  employers  of  labor  who  can  contribute 
to  this  result.  The  greater  the  respect  and  sympathy  for 
working  women,  on  the  part  of  the  general  community,  the 
easier  will  it  be  for  the  young  and  unprotected  to  find  em- 
ployment and  maintain  tliemselves  in  it.  It  is  hard  enough, 
at  the  best,  for  a  woman  to  go  about  and  solicit  work,  per- 
haps in  strange  places,  certainly  from  strangers  ;  and  to  go 
and  come,  at  early  and  at  late  hours,  through  quarters  not 
free  from  disorderly  elements.     The  more  public  interest 


260  POLITICAL  ECONOMY. 

is  aroused  in  working  women,  the  more  man's  instinctive 
chivalry  is  appealed  to  on  their  behalf,  the  larger  will  be 
the  opportunities  of  work  open  to  them,  the  better  their 
chances  of  obtaining  the  employment  they  need.  This  is 
what  I  mean  by  "the  moral  and  intellectual  elements  of 
demand  and  supply." 


CHAPTER  XXIV. 

THE  ECONOMIC  EFFECTS  OF  IMPERFECT  COM- 
PETITION. 

234.  The  Assumption  of  Perfect  Competition. — In  para- 
graph 162  it  was  said  that,  in  the  chapters  immediately 
following,  a  state  of  perfect  competition  would  be  assumed. 
We  should,  thus,  seek  to  show  what  would  be  the  distribu- 
tion of  wealth,  did  each  man,  in  his  place  in  the  industrial 
order,  high  or  low,  fully  understand  his  economic  interests, 
and  unfalteringly  pursue  those  interests,  as  thus  discerned. 
We  have  now  seen  what  I  believe  to  be  a  complete  and  con- 
sistent theory  of  distribution,  constructed  upon  this  basis. 

The  assumption  that  competition  is  always  and  every- 
where perfect,  implies  a  great  deal.  How  much  it  implies, 
let  us,  for  a  moment,  stop  to  see.  It  implies,  not  only 
that  a  man  has  the  general  intelligence  and  the  special  in- 
formation to  enable  him  to  know,  at  any  time,  just  what 
would  be  for  his  own  true,  permanent,  economic  advantage; 
but,  also,  that  he  will  not  be  hindered  by  law  or  force  or 
custom  or  public  opinion,  or  by  his  own  ignorance,  in- 
dolence, fear  or  poverty,  from  seeking  that  object,  steadily 
and  firmly,  until  he  reaches  it.  Should  his  interest  require 
him  to  leave  home,  country  and  friends,  he  will  not  hesi- 
tate to  do  so.  Should  better  opportunities  offer  themselves 
in  other  avocations,  he  will  change  his  work,  not  less  than 
his  place,  in  order  to  secure  those  ailvantages. 

235.  The  United  States  as  an  Example. — It  will  be  seen 
that  perfect  competition  requires  a  great  deal:  more,  in- 

261 


262  POLITICAL  ECONOMY. 

deed,  than  was  ever  found  among  any  people.  But,  while 
nothing  less  than  this  will  answer  all  the  requirements  of 
competition,  something  much  less  than  this  Avill  yet  answer 
those  requirements  so  far  as  to  secure  a  reasonably  har- 
monious and  beneficent  distribution  of  wealth. 

Let  us  take  tlie  Free  States  of  the  American  Union  be- 
fore the  War  of  Secession,  as  an  illustration.  Here  a  system 
of  public  education  had  bred  a  population  in  which  the 
elements  of  knowledge  were  every  man's  possession.  K'ot 
only  was  the  ability  to  read,  write  and  cipher  universal; 
but  the  genius  of  the  people  was  singularly  alert,  active 
and  inquisitive.  What  the  American  of  those  days  did  not 
know  about  his  own  business,  he  was  sure  to  know  about 
that  of  his  neighbor.  Political  suffrage  being  universal, 
the  whole  population  had  become  accustomed  to  public  dis- 
cussion; and  all  had  learned  freely  to  communicate  their 
own  views,  quickly  to  gather  the  opinions  of  others,  and  to 
take  part,  with  confidence,  in  the  decision  of  important 
questions. 

This  people,  moreover,  had  an  instinctive  aptitude  for 
tools  and  a  remarkable  readiness  for  turning  themselves  to 
any  work  which  offered.  The  American  farmer  was  a  good 
all-round  mechanic;  while  the  jjrofessional  mechanics  could, 
if  necessary,  change  their  trade,  almost  over-night.  The 
habits  of  the  population  favored  the  freest  movement. 
From  the  first  settlement  of  the  country,  men  had  made 
less  of  going  from  the  seaboard  to  the  frontier  than  the 
men  of  some  countries  make  of  going  from  one  village  to 
the  next.  At  the  time  of  which  we  are  speaking,  not  less 
than  one-fourth  of  the  population  were  living  in  States 
other  than  those  in  which  they  were  born;  another  fourth, 
probably,  in  Counties  other  than  those  in  which  they  were 
born. 

We  have  only  to  add  that,  in  a  new  country,  as  yet  only 


POLITICAL  ECONOMY.  263 

half  settled,  the  "  margin  of  living"  had  been  so  large  as 
to  admit  of  almost  universal  saving:  no  man  was  too  poor 
to  migrate,  if  he  learned  of  superior  advantages  elsewhere, 
and  of  these  he  was  almost  certain  to  learn,  through  news- 
papers that  went  into  nearly  every  house  and  cabin. 

Under  conditions  such  as  the  foregoing,  every  economic 
advantage  was  quickly  discerned  and  keenly  j^ursued,  and, 
so,  the  actual  distribution  of  wealth  came  very  near  to  the 
theoretical  distribution  which  has  been  outlined  in  the  pre- 
ceding chapters. 

236.  An  Illustration  of  Defective  Competition. — In  con- 
trast with  the  Americans  of  that  period,  let  us  take,  as  an 
illustration  of  how  far  competition  might  fail,  among  a 
people  of  the  same  race,  the  England  of  1824.  Here  no 
system  of  public  education  had  made  the  elements  of 
knowledge  free  to  all.  The  heavily  taxed  newspapers  were 
for  "gentlemen's  reading,"  alone.  The  great  body  of  the 
working  classes  were  excluded  from  the  suffrage;  and  had 
never  been  invited  to  the  deliberations  and  decisions  of 
public  policy.  Twenty  years  of  war,  combined  with  heavy 
duties  laid  on  foreign  breadstuffs,  had  forced  cultivation, 
within  the  island,  down  to  almost  the  poorest  soils,  and  had, 
thus  (par.  1G8),  largely  increased  the  share  of  the  produce 
going  to  the  landlord  class;  while  enormous  taxes,  due  to 
Avar  and  to  war-debts,  raised  the  j^rice  of  the  necessaries  of 
life  to  an  intolerable  pitch.  The  "margin  of  living"  had 
long  been  so  small  that  savings  were  few;  and  the  great 
majority  of  working  men  were  too  poor  to  migrate,  even 
within  the  kingdom,  had  they  been  disposed. 

In  fact,  however,  their  ignorance  was  so  great  that  good  op- 
portunities, existing  elsewhere,  were  most  unlikely  to  come 
to  their  notice.  It  only  needs  to  be  added  that,  for  hun- 
dreds of  years,  it  had,  by  law,  been  a  crime  in  England  for 
laborers  to  combine  together  to  raise  the  rate  of  wages,  or 


264  POLITICAL  ECONOMY. 

to  shorten  the  day  of  labor,  while  masters  had  been,  all  th' 
time,  free  to  combine  to  lower  the  rate  of  wages  and  to 
lengthen  the  day  of  labor.  The  laborers,  thus,  unaccus- 
tomed to  act  in  concert,  were  without  mutual  intelligence 
and  without  mutual  support,  if  not  jealous  and  suspicious 
of  each  other,  as  rivals  for  employment.  The  masters, 
strong  in  their  position,  their  wealth  and  their  knowledge, 
formed  a  resolute  and  compact  force,  whether  for  defence 
or  for  offence. 

237.  The  Consequences  of  Defective  Competition. — Such 
was  industrial  England,  in  1824.  The  lamentable  defects 
of  so  extensive  a  failure  of  competition  could  only  be  ade- 
quately depicted  in  a  volume.  Wages  had  gone  down  and 
down,  and  with  them  had  gone,  to  an  inconceivable  depth, 
the  moral  character  and  even  the  physical  vigor  of  the 
population.  The  laborers  in  the  fields  obtained  a  meaner 
and  scantier  subsistence  than  the  paupers  in  the  alms- 
houses.* Pauperism  was,  indeed,  the  best  refuge  for  the 
able-bodied.  Even  when  opportunities  for  employment 
existed  in  more  favored  localities,  the  peasants  were  too  ig- 
norant to  learn  of  it,  and  too  poor  to  migrate,  had  the  in- 
telligence been  brought  to  tliem.f  Within  the  districts 
where  labor  was  in  excess,  wages  were  whatever  the  masters 
chose  to  offer.  The  power  to  resist  had  utterly  departed 
from  the  laborer.  With  every  successive  reduction  of  wages, 
physical  vigor  declined;  self-respect  and  social  ambition  re- 
ceived heavier  and  still  heavier  blows;  disease  came  in  with 

*  The  Poor  Law  Commissioners  of  1833  reported  that,  while  able- 
bodied  paupers  received  151  oz.  of  food  per  week,  the  agricultural 
laborer  cousumed  but  123  oz. 

f  Even  at  a  later  period,  a  well-known  statistician  says:  "  A  labor- 
er's wages  in  Dorset  or  Devon  are  barely  half  the  sum  givLU  fen- 
similar  services  in  the  North  of  England."  And  this  state  of  things 
continued  for  a  generation,  without  a  movement  of  labor  sufficient  to 
correct  the  inequality. 


POLITICAL  ECONOMY.  265 

deadlier  power;  intemperance  grew  with  misery;  shameful 
vice  *  became  ever  more  obtrusive. 

It  is  no  hostile  picture  which  I  have  drawn.  More  griev- 
ous statements  could  be  borne  out  by  hundreds  of  volumes 
written  by  Englislimeu:  many  of  tb.em,  official  "blue 
books."  What  has  been  described  is  simply  the  natural 
effects  of  one-sided  competition.  On  their  part,  the  mas- 
ters, actuated  by  no  ill-feeling  toward  their  laborers,  but  ear- 
nestly seeking  their  own  interests,  and  often  sorely  crowded 
by  each  other,  kept  pushing,  pushing,  pushing  against  their 
laborers,  who,  on  their  part,  were  utterly  unable  to  resist 
the  fatal  pressure.  Had  the  men  been  alert,  active,  aggres- 
sive, Avith  equal  rights  of  combination,  thoroughly  "posted" 
as  to  the  conditions  of  industry,  confident  in  themselves 
and  trusting  each  other,  the  harder  the  masters  pressed 
against  them,  the  better  for  all.  What  was  wanted  was, 
not  that  the  masters  should  be  mild  and  yielding,  but  that 
the  workmen,  too,  should  be  resolute  and  firm. 

238.  A  Loss  which  No  Man  Gains. — It  is  not,  even,  for 
the  interest  of  the  employing  class  that  their  workmen 
should  easily  give  way,  under  pressure  from  them.  If  the 
employers,  themselves  under  a  painful  strain  from  competi- 
tion (and  it  is  always  to  be  borne  in  mind  that  many  em- 
ployers can,  at  the  best,  only  hope  to  make  both  ends  meet), 
crowd  hard  upon  their  laborers,  in  the  matter  of  work  and 
wages,  and  the  latter  give  way,  immediate  relief  is,  indeed, 
afforded,  but  that  n^lief  is  only  temporary,  while,  in  the 
end,  the  effects  are  destructive. 

Wages  having,  under  pressure,  fallen,  prices  follow  them 
down  to  the  point  where  the  least  competent  employers  can, 
again,  only  just  get  back  their  outlay  in  the  sale  of  their 

*  "In  many  districts,"  says  Miss  Martineau,  in  her  History  of  the 
Peace,  "  it  was  scarcely  possible  to  meet  a  young  woman  who  was 
respectable." 


266  POLITICAL  ECONOMY. 

goods.  This  having  been  brought  about,  these  employers 
are  no  better  off  than  before.  But  how  is  it  with  the 
laborers  concerned  ?  Upon  them  the  loss  of  wages,  which 
means  scantier  subsistence  and  meaner  conditions,  operates 
to  reduce  at  once  their  physical  strength  and  their  social 
and  industrial  ambition  (pars.  37-41  and  43-45);  and  they 
are  soon  woi-th  their  lower  wages  no  more  than  they  were 
formerly  worth  their  higher  wages.  Here,  then,  is  a  loss 
which  no  man  gains.  The  employer  is  no  better-off  because 
the  laborer  has  been  driven  to  lower  wages  and  meaner  con- 
ditions, and  deprived  of  much  of  his  physical  vigor  and  self- 
respect.  The  laborer  is  infinitely  worse-off.  The  State, 
too,  has  sustained  a  painful  and  irreparable  loss,  in  the 
character  of  its  citizenship. 

239.  Self-Assertion  on  the  Part  of  the  Laboring  Class  is 
Essential  to  General  Well-Being.— Nothing,  economically 
speaking,  can  save  industrial  society  from  progressive  deg- 
radation, except  the  spirit  and  the  power  in  the  working 
classes  to  resist  being  crowded-down.  The  crowding  must 
take  place.  It  is  in  the  nature  of  trade  and  production. 
If  the  workmen  are  active,  alert,  aggressive ;  strong  in 
their  self-respect  and  confident  of  their  cause,  that  pres- 
sure will  do  them  no  permanent  harm. 

Suppose  you  strike  with  a  hammer  into  a  bin  of  barley. 
You  bury  the  hammer  up  to  your  wrist  in  the  barley:  yet 
you  do  not  crush  a  single  grain.  Why  not  ?  Because  the 
whole  mass  was  free  to  move ;  and  no  single  grain  had  to 
receive  any  considerable  part  of  the  blow.  Lay  one  of 
those  grains  upon  a  plank,  and  strike  a  blow  a  tenth  part 
as  hard  :  you  will  smash  it  into  a  paste.  Why?  Because 
the  grain  was  not  free  to  move ;  and  consequently  had  to 
suffer  the  blow  without  escape.  Let  the  stoutest  ship 
which  ever  rode-out  a  hundred  gales,  be  lodged  in  the 
sands,  or   caught   between   rocks ;  and    the   waves   which 


POLITICAL  ECONOMY.  267 

smite  lier.  as  siie  is  held  fast  in  position,  will,  in  a  few 
days  or  hours,  break  her  up,  and  scatter  mast  and  plank, 
crew  and  cargo,  in  wreck  along  the  shore. 

A  laboring  population  whicli  is  alive  to  its  own  interests 
and  prompt  and  strong  in  maintaining  them,  cannot  be 
crushed  by  any  sudden  calamity,  or  even  by  unremitting 
pressure  from  the  master  class.  If  employment  fails  at 
one  point,  hundreds  or  thousands  will  go  to  the  places 
where  business  is  flourishing.  If  industry  is  prostrate  all 
over  the  land,  such  a  population  will  be  found  to  have  re- 
serves, in  savings  banks  or  in  real  estate,  which  will  carry 
them  through  to  better  times.  If  the  conditions  of  indus- 
try grow  harder  and  harder,  from  year  to  year,  such  a  pop- 
ulation will  withhold  their  increase,  and  thus  gradually  re- 
duce the  supply  of  labor. 

But  a  population  such  as  we  have  described,  in  the  Eng- 
land of  1824,  only  breed  the  faster,  the  more  miserable  they 
become;  only  cling  the  closer  to  their  place,  the  harder  their 
lot.  Upon  such  a  population  industrial  blows  are  sure  to 
fall,  thick  and  fast ;  and  each  blow  does  a  damage  never  to 
be  repaired.  There  is  almost  no  limit  to  the  industrial  and 
social  degradation  which  may  come  in  this  way. 

240.  Lowering  the  Industrial  Character  of  the  Employ- 
ing Class. — I  have  said  that  it  w^as  of  no  permanent  advan- 
tage to  the  employer  to  reduce  wages  by  economic  pressure; 
while  it  was  of  great  and  lasting  injury  to  the  laboring 
class.  There  is  another  effect  of  imperfect  competition,  as 
between  laborer  and  employer,  which  deserves  to  be  noted. 
The  inevitable  result  is  to  bring  into  business  a  poorer  class 
of  employers;  and  thus  to  reduce  the  margin  of  produc- 
tion, in  this  respect ;  and  thus  (par.  195)  to  still  further 
injure  the  laboring  class  and  the  whole  community. 

If  the  laboring  class  are  active,  alert  and  aggressive  in 
the  pursuit  of  their  interests,  the  employing  class  will  be 


268  POLITICAL  ECONOMY 

continnally  sifted  ;  its  weakest  members  will  be  thrown- 
out ;  and  the  whole  class  will  undergo  an  unceasing  educa- 
tion, in  all  that  relates  to  their  business.  If,  on  the  other 
hand,  the  laborers  are  ignorant,  stupid,  inert,  great  num- 
bers of  incom^ietent  men  will  get  into  the  control  of  in- 
dustry, and  sustain  themselves  there,  at  the  expense  of  the 
community,  and  of  the  laboring  class  in  particular.  The 
poorer  the  man,  the  poorer  the  master.  The  unprofitable- 
ness of  slave  labor  was  not  due  more  to  the  inefficiency  of 
the  slave  than  to  the  shiftlessness  of  the  management. 
Men  will  become  the  employers  of  poor  labor  who  would 
never  become  the  employers  of  good  labor,  and  who  ought 
not  to  be  the  employers  of  any  kind  of  labor. 

241.  The  Repeal  of  the  Corn  Laws. — An  excellent  illus- 
tration of  the  effects  of  increased  comjDetition,  in  improv- 
ing the  character  of  the  employing  class,  is  to  be  found  in 
the  history  of  English  agriculture,  before  and  after  the  re- 
peal of  the  Corn  Laws,  in  1846.  While  Parliament  was 
discussing  that  measure,  there  were  numberless  farmers 
who  could  appear  before  committees,  or  write  letters  to 
the  newspapers,  showing  that  they  were  only  just  able  to 
make  both  ends  meet,  at  existing  prices  for  produce.  If, 
then,  prices  were  to  be  lowered,  by  allowing  foreign  bread- 
stuffs  to  come  in  free,  it  was  as  clear  as  the  nose  on  your 
face  that  English  agriculture  would  be  ruined. 

As  to  the  facts,  there  could  be  no  question.  These 
farmers  were  perfectly  honest  in  their  statements.  Never- 
theless, Parliament  repealed  the  Corn  Laws.  Was  Eng- 
lish agriculture  ruined  ?  Far  from  it.  Many  of  the  old 
ignorant,  hard-drinking,  horse-racing,  fox-hunting  farmers 
were,  indeed,  driven  out;  but  their  places  were  more  than 
taken  by  a  new  race,  who  studied  their  business,  worked 
hard,  bought  superior  machinery;  introduced  improved 
breeds  of  cattle  ;  frequented  the  agricultural  fairs,  not  for 


POLITICAL  ECONOMY.  269 

a  "^good  time,"  but  to  get  hints  for  the  management  of 
their  farms.  As  a  result,  English  iigricnlture  gained  more 
during  the  twenty-five  years  which  followed  1850,  than 
during  the  seventy-five  years  which  preceded  it. 

242.  Other  Causes  which  Help  to  Swell  the  Proportion  of 
Incompetent  Employers. — There  are  many  other  causes 
which  help  swell  the  proportion  of  incompetent  employers. 
Shilly-shally  laws  relating  to  insolvency  do  this ;  bad 
money  does  this,  in  a  high  degree  ;  track  (that  is  tlie  pay- 
ment of  workmen  in  goods,  at  the  employer's  store,  instead 
of  in  money)  does  this ;  protection,  also,  in  my  opinion, 
does  this.  Each  of  these  causes  enables  employers  to  es- 
cape the  consequences  of  incompetency,  and  to  hang  miser- 
ably on  to  business,  where  they  are  an  obstruction  and  a 
nuisance. 

243.  The  Influence  of  Defective  Competition  upon  Rents. 
— We  have  seen  that  the  normal  rent  of  any  piece  of  land 
is  determined  by  the  excess  of  its  productiveness  over  that 
of  the  least  fertile  lands  contributing  to  the  supply  of  the 
same  market,  at  the  same  time.  In  theory,  rents  cannot 
exceed  the  amounts  thus  determined.  Should  the  landlord 
attempt  to  exact  a  higher  rate,  tenants  will  move  to  the 
no-rent  land  (whether  found  at  home  or  in  some  distant 
country)  ;  and  thus  protect  themselves  against  such  exac- 
tions. Under  perfect  competition,  rent  can  only  carry 
away  the  proper  Surplus,  as  we  have  defined  it.  But  how 
if  competition  be  imperfect? 

244.  Rents  in  Ireland. — We  have  illustrated  the  effects 
of  imperfect  competition  upon  wages,  by  a  reference  to  the 
condition  of  the  working  classes  in  England,  prior  to  1825. 
Let  us  illustrate  the  effects  of  iniperft'ct  competition  upon 
rents  by  a  brief  reference  to  the  condition  of  the  tenant 
class  in  Ireland,  prior  to  1850.  Unfortunate  as  were  the 
relations  betwueu  laborer  and  emjjloyer  in  England,  at  the 


270  POLITICAL  ECONOMY. 

time  spoken  of,  the  relations  between  landlord  and  tenant 
in  Ireland  were  even  worse. 

In  the  first  place,  the  Irish  peasant  was  peculiarly  ill 
fitted  for  a  close  competition  with  his  landlord.  He  was, 
by  nature,  sanguine,  impulsive,  careless  in  expenditure, 
perhaps  it  is  not  too  much  to  say,  improvident.  He  was 
not  much  given  to  looking  far  ahead;  while,  in  the  present, 
he  was  sociable  and  generous  to  a  fault.  Had,  however, 
the  landlord  class  been  of  his  own  race  and  bound  to  him 
by  common  sympathies,  the  peculiarities  of  the  Irish  tem- 
Ijerament  might  not  have  resulted  in  serious  harm.  Most 
unfortunately,  the  landlords  of  Ireland,  at  this  time,  were 
largely  of  a  different  race  and  a  different  religion.  The 
two  classes  were  not  only,  thus,  alien  to  each  other ;  thev 
had  been  made  hostile  by  mutual  injuries. 

Even  this  was  not  the  worst  of  the  case.  A  large  part  of 
the  Irish  landowners  were  '^  absentees,"  expending  in 
foreign  lands  the  rents  which  were  wrung  from  the  jDcas- 
antry  by  middle-men,  or  agents  resident  on  the  soil. 
Generally  speaking,  these  middle-men  and  agents  were  a 
peculiarly  hard  sort  of  men.  They  had  been  selected  for 
their  skill  in  searching-out  every  possible  means  of  exac- 
tion, and  for  their  unflinching  resolution  in  exacting  the 
last  penny,  even  by  "  distraint"  or  eviction.  The  hatred 
with  which  they  were  regarded  by  the  peasantry  only  made 
them  the  harder.  The  dangers  to  which  they  were  exposed, 
in  their  cruel  work,  destroyed  every  feeling  of  compassion 
in  their  hearts. 

245.  Over-Population. — We  have  said  that  the  Irish  peas- 
antry were  peculiarly  ill  qualified  for  such  a  competition 
by  their  national  characteristics.  But  that  which  j^ut 
them  at  the  greatest  disadvantage  was  the  recklessness  with 
which  they  increased  their  numbers.  The  more  miserable 
they  were,  the  earlier  they  married,  the  more  freely  they 


POLITICAL  ECONOMY.  271 

brought  forth  children.  By  this  it  came  about  that  popu- 
lation soon  came  to  be  greatly  in  excess  ;  and  the  wretched 
peasantry  were  driven  to  compete  with  each  other,  with 
ever  increasing  eagerness,  for  the  poor  privilege  of  cultivat- 
ing each  small  parcel  of  ground. 

It  was  through  such  a  state  of  unequal  competition,  that 
the  Irish  peasantry  were  reduced  to  that  condition  of  uni- 
versal and  hopeless  poverty  which  the  great  famine  of 
1846-7  brought  so  vividly  to  public  attention,  filling  the 
world  with  horror.  Rents  had  been  increased,  step  by 
step,  until,  in  a  large  proportion  of  instances,  the  sums 
which  the  peasants  had  promised  to  pay  were,  incredible 
as  it  may  seem,  actually  in  excess  of  the  whole  produce  of 
the  soil  !  Of  course,  such  rents  could  not  be  paid.  The 
peasant  had  to  live  ;  and  consequently  the  landlord  had 
to  allow  him  something  on  which  to  live.  But  his  food 
was  of  the  most  scanty  and  miserable  character  ;  rags  were 
his  clothing ;  his  bed,  a  heaj)  of  straw  ;  his  hovel,  a  pen 
only  fit  for  swine.  Even  so,  the  peasant  was  always  in 
arrears  to  his  landlord,  which  fact  gave  the  agent  still 
greater  power  over  him,  and  made  it  still  harder  for  him 
to  improve  his  lot. 


CHAPTEE  XXV. 

WHAT  MAY  BE  DONE  TO  HELP  THE  WORKING 

CLASSES. 

246.  What  was  Done  in  England.— If  such  are  the  evil 
consequences  of  an  economic  pressure  to  which  the  labor- 
ing classes  are  unable  adequately  to  respond,  the  question 
arises^,  what,  if  anything,  can  be  done,  in  such  a  state,  to 
help  them  ?  We  shall,  perhaps,  best  answer  this  question 
by  telling,  very  briefly,  what  actually  was  done  in  England. 

247.  Trade-Unions.— In  1824-5,  Parliament,  under  the 
enlightened  leadership  of  William  Huskisson,  repealed  the 
laws  which  had  forbidden  workmen  to  combine  to  raise 
v/ages  or  shorten  the  day  of  labor,  or  alter  the  terms  or  con- 
ditions of  employment.  Of  this  the  working  classes  at  once 
took  advantage,  to  form  Trade-Unions,  in  which  men  of  the 
same  trade  joined  together  to  promote  their  common  in- 
terest. These  Unions  collected  money  from  their  mem- 
bers, through  weekly  or  monthly  fees  ;  kept  up  correspond- 
ence with  other  unions,  in  other  places ;  assisted  the  sick 
and  disabled  of  their  own  number  ;  and,  when  they  deemed 
the  occasion  propitious,  made  demands  upon  the  employing 
class,  which  demands  they  stood  ready  to  enforce,  if  neces- 
sary, by  Strikes,  that  is,  by  concerted  refusal  to  work  at  the 
old  terms. 

In  the  miserable  condition  to  which  they  had  been  re- 
duced by  the  causes  indicated  in  paragraj^h  236,  ignorant, 
poor,  unfamiliar  with  affairs,  the  laborers,  in  their  new 
efforts,  for  awhile  made  many  and  great  mistakes.     Noisy 

272 


POLITICAL  ECONOMY.  273 

and  turbulent,  or  sly  and  plausible,  men  got  the  leadership, 
as  is  ahvavs  the  case  at  first.  These  misled  the  well-mear.ing 
and  excited  the  bad.  Demands  were  made  upon  employ- 
ers which  could  not  properly  be  granted ;  and  those  de- 
mands it  was  sometimes  sought  to  enforce,  not  only  by 
strikes,  which  were  lawful  and  right,  but  also  by  violence, 
which  was  unlawful  and  wrong.  In  many  of  the  contests 
which  ensued,  the  laborers  were  beaten;  and,  after  suffer- 
ing untold  losses,  were  obliged  to  go  back  to  work,  at  the 
old  wages  and  for  the  old  hours.  Still  they  persisted,  with 
wonderful  courage  and  admirable  fidelity  to  each  other. 
Beaten  again  and  again,  they  again  and  again  returned  to 
the  attack.  Even  when  they  were  beaten  outright  and 
completely,  the  masters  were  3et  learning  to  fear  and  to 
respect  them,  as  they  had  never  done  in  the  times  when  it 
was  the  theory,  alike  of  the  law,  and  of  the  master,  and  of 
the  economist,  that  laborers  had  nothing  whatever  to  do 
with  fixing  their  own  wages,  but  should  take  whatever  was 
offered  them,  in  silence  and  thankfulness. 

248.  Education  of  the  Working  Classes. — Meanwhile,  the 
working  classes  were  learning  both  their  own  power  and 
the  limitations  of  that  power  ;  were  coming  to  have  confi- 
dence in  themselves  and  in  each  other ;  were  beginning  to 
see  the  difference  between  noisy  demagogues  and  true 
leaders.  Better  men  were  coming  to  the  front  among  them. 
The  times  taken  for  making  demands  were  more  wisely 
chosen.  The  demands  themselves  were  more  reasonable. 
The  tone  and  manner  in  which  these  demands  were  made 
were  more  conciliatory  and  respectful.  More  and  more, 
demands  thus  made  were  conceded  without  a  contest,  or 
won  after  a  hard  fight.  But,  whether  the  working  men 
won  or  lost  the  particular  thing  they  were  struggling  for, 
they  were,  all  the  while,  gaining  knowledge  of  themselves 
and  commanding  the  respect  of  the  employing  class 


274  POLITICAL  ECONOMY. 

249.  Factory-Acts  Passed. — While  this  series  of  indus- 
trial insurrections  was  going  on,  Parliament,  moved  by 
many  enlightened  and  philanthropic  men,  was  doing  what 
it  could  to  raise  the  condition  of  the  people.  Factory-Acts, 
so-called,  were  passed,  which  limited  the  hours  of  labor  to 
what  was  consistent  with  health  and  strength ;  which  re- 
stricted the  employment  of  young  children  ;  which  forbade 
women  to  work  underground  in  mines,  or  in  othc^r  avoca- 
tions unsuited  to  their  sex ;  which  required  dangerous 
machinery  to  be  fenced  or  guarded,  so  as  to  protect  life 
and  limb  ;  which  provided  for  the  sanitary  regulation  and 
inspection  of  factory  buildings. 

250.  Other  Remedial  Legislation. — Acts  were  also  passed 
which  established  banks  to  protect  the  first  small  savings 
of  the  very  poor;  the  suffrage  was  extended;  taxes  which 
pressed  with  peculiar  hardship  on  the  masses  were  repealed ; 
the  stamp  duties  were  removed  from  the  newspapers. 
Measure  after  measure,  conceived  in  the  true  spirit  of 
statesmanship,  to  help  the  people  to  help  themselves, 
became  laws,  in  quick  succession.  Aided,  thus,  by  judi- 
cious legislation,  but  striving  ever  more  and  more  to  aid 
themselves,  the  British  laboring  class  climbed  upward,  out 
of  "  the  horrible  pit  and  miry  clay"  in  which  they  had 
been  left  by  the  abuse  and  neglect  of  centuries  ;  and  began 
to  take  their  true  place  in  society. 

There  was  still  a  great  deal  of  drunkenness,  riot  and  coarse 
vice,  a  great  deal  of  wastefulness  and  foolish  expenditure 
of  means  hardly  earned.  But,  in  spite  of  all,  the  long  his- 
tory of  mankind  has  no  other  chapter  which  is  so  full  of 
promise,  as  that  which  tells  of  the  rise  of  the  working 
classes  of  England  from  1825  to  the  present  time.  The 
British  laborer  of  to-day  differs  as  widely  from  the  British 
laborer  of  the  early  time,  as  if  he  were,  in  the  phrase  of 
Edmund  Burke,  "a  different  species  of  animal." 


POLITICAL  ECONOMY.  275 

251.  Factory-Acts  Considered. — The  present  Duke  of 
Argyle,  in  his  Eeign  of  L:u\%  declares  that  the  necessity 
and  economic  benefit  of  factory  legislation,  like  that  of 
England  to  which  we  have  referred,  constitutes  one  of  the 
greatest  discoveries  of  the  nineteenth  centur}',  in  the  sci- 
ence of  government.  Certainly,  although  these  acts  were 
at  first  opposed  by  many  statesmen  and  by  most  econ- 
omists, they  have  been,  in  the  result,  approved  by  experi- 
ence, and  have  been  copied,  with  more  or  less  of  change, 
by  nearly  all  civilized  governments.  It  has  now  passed  be- 
yond question,  that  it  is  desirable  that  mill-owners  and 
large  employers  of  labor,  should  be,  by  law,  restrained  from 
doing  (whether  under  the  impulse  of  avarice,  or  under 
painful  pressure  from  competition)  certain  things  which 
are  clearly  prejudicial  to  their  operatives,  and  which  can, 
in  the  long  run,  do  no  good  to  themselves.  Such  acts,  if 
wisely  conceived  and  sensibly  administered,  are  a  protection 
not  less  to  the  employer  than  to  the  laborer.  They  do  no 
harm  to  any,  but  only  good  to  all.  The  master  class  them- 
selves ought  to  be  glad  that  it  is  forever  put  out  of  their 
power  to  do  the  things*  which  are  prohibited  by  these 
measures.  Within  the  limits  where  the  law  still  leaves 
them  free  to  act,  the  ablest  of  employers  will  find  abun- 
dant scope  for  the  exercise  of  all  his  energy,  enterprise  and 
skill. 

To  the  laboring  class,  on  the  other  hand,  seeking  their 

*  The  beginuing  of  the  present  century  found  children  of  five, 
and  even  of  tliree,  years  of  age,  in  England,  working  in  factories 
and  brickj'ards;  found  women  working  underground  in  mines,  har- 
nessed with  mules  to  carts,  drawing  heavy  loads;  found  the  hours 
of  labor  whatever  the  avarice  of  individual  mill-owners  might  <!.\act, 
were  it  thirteen,  or  fourteen  or  fifteen  ;  found  no  guards  about  ma- 
chinery, to  protect  life  and  limb;  found  the  air  of  the  factories  fouler 
than  language  could  describe,  even  could  human  ears  endure  to  hear 
the  story. 


276  POLITICAL  ECONOMY. 

own  interests  through  much  perplexity  and  against  many 
obstacles,  factory  legislation  gives  a  certain  definite,  solid, 
unshakable  ground,  on  which  they  can  securely  build,  in 
their  further  eiiorts.  Below  this,  the  force  of  competition, 
the  effects  of  shocks  and  catastrophes  cannot  come.  This 
much,  at  least,  is  secure. 

252.  How  about  Freedom  of  Contract  ? — The  objection 
made  to  factory  legislation  has  been  that  it  interferes  with 
the  freedom  of  contract.  But  what  is  freedom,*  so  far  as 
practical  men  are  concerned  with  it  ?  Is  it  an  empty  right 
to  do  something  which  you  cannot  possibly  do  ?  or  is  it  a 
real  power  to  do  that  one,  out  of  many  things,  which  you 
shall  choose  ?  If  one  course  gives  a  man  a  legal  right  to 
do  anything,  but  results  in  his  being  so  helpless,  and  brings 
him  into  such  miserable  straits,  that  he  can,  in  fact,  do  but 
one  thing,  and  that,  a  thing  which  is  most  distressing; 
while  another  course,  though  it  keeps  a  man  from  going 
hither  and  thither,  actually  conducts  him  to  a  position 
where  he  has  a  real  choice,  among  many  and  good  things — 
which  course  affords  the  largei-  liberty? 

In  the  case  of  a  poor  and  ignorant  population,  the  ab- 
sence of  factory-acts,  while  it  nominally  leaves  the  opera- 
tive free  to  go  anywhere  and  do  whatever  he  likes,  really 
results  in  his  staying  where  he  is,  and  doing  what  he  par- 
ticularly dislikes.  He  becomes  the  slave  of  the  mill,  bound 
fast  to  the  great  wheel  which  turns  and  turns  below. 
Theoretically,  he  will  not  work  in  any  factory  in  which  the 
sanitary  arrangements  do  not  suit  the  most  fastidious  tastes; 
in  which  machinery  is  not  fenced,  to  prevent  murder  and 

*  "The  modern  English  citizen,  who  lives  under  the  burden  of 
the  revised  edition  of  the  Statutes,  not  to  speak  of  innumerable  muni- 
cipal, railroad,  sanitary  and  other  by-laws,  is,  after  all,  an  infinitely 
FREER,  as  well  as  nobler,  creature  than  the  savage  who  is  always 
under  the  despotism  of  physical  want." — Prof.  Jevons. 


POLITICAL  ECONOMY.  277 

mutilation ;  and  in  which  tlie  liours  are  not  agreeably 
short.  Theoretically,  too,  he  will  place  himself  with  refer- 
ence to  the  comfort  of  his  family,  and  to  the  education  of 
his  children  for  a  career  better  than  his  own. 

Practically,  he  will  have  no  choice  but  to  work  as  long  as 
the  great  wheel  turns,  be  that  twelve  hours  or  fourteen,  or 
else  go  out  to  starve  ;  he  will  every  week  see  some  of  his 
companions  bruised  and  mangled  by  unguarded  machinery; 
he  will  breathe  air  which  is  deeply  laden  with  poisonous 
particles  or  gases.  Practically,  too,  he  will,  under  the  pres- 
sure of  dire  necessity,  put  his  children  into  the  mill  Just  as 
soon  as  he  can  get  them  there  ;  and  in  the  mill  they  will 
stay  until  they  die.  This  is  what  will  come  to  most  labor- 
ing populations,  without  factory-acts.  Are  such  popula- 
tions really  freer  than  populations  which  are  protected 
by  laws  like  those  which  we  have  described  ? 

A  crutch  acts  only  by  restraint;  and,  to  a  perfectly 
sound  man,  would  be  only  a  hindrance  and  a  nuisance. 
But  is  a  cripple  without  a  crutch  a  freer  man  than  a 
cripple  with  a  crutch  ?  In  his  case,  does  not  the  crutch 
correspond  to  an  existing  infirmity,  in  such  a  way  that  he 
has  a  much  greater  liberty  and  power  of  action  and  of 
movement,  tbrough  its  help  :  that  is,  through  the  restraint 
it  exercises? 

253.  Trade-Unions  Considered. — In  the  elevation  of  a 
laboring  population,  long  abused  and  deeply  abased,  trade- 
unions  may  perform  a  part  of  much  importance,  although 
always  at  the  risk  of  doing  harm  rather  than  good.  That 
risk,  however,  men  have  frequently  to  take  in  the  pursnit 
of  a  desirable  social  object ;  and  the  history  of  industry 
shows  that,  on  the  whole,  the  good  has  predominated  over 
the  evil,  in  the  work  of  trade-unions. 

Trade-unions,  as  means  for  advancing  the  condition  of 
the  working  classes,  are  subject  to  drawbacks  which  do  not 


278  POLITICAL  ECONOMY. 

attend  factory-acts.  There  is  no  reason  why  the  effects  of 
the  latter  should  not  be  altogether  for  good.  The  things 
which  are  to  be  proliibited  are  things  which,  in  any  broad 
view,  are  seen  to  be  injurious  to  all.  Tlie  things  which  are 
required  are  things  which  really  benefit  both  parties  to  the 
contract  for  labor.  Within  the  lines  drawn  by  factory  leg- 
islation, the  laborer  and  the  employer  are  left  free  to  seek 
their  several  interests,  and  to  exercise  eacli  his  own  powers 
in  his  own  way.  But  in  the  case  of  trade-unions,  there  is 
a  real  and  a  great  danger  that  mischief  will  be  done. 
There  is  a  strong  and  a  constant  liability  to  begin  courses 
which  can  only  result  in  injury  to  the  general  community, 
and  to  both  parties  to  the  contract  for  labor  :  most  of  all, 
to  the  "  laborer  himself.  The  trade-union  is  not  only  an 
edged  but  a  two-edged  tool,  which  is  highly  dangerous  to 
those  who  wield  it  carelessly  or  wantonly. 

254.  Abuse  of  Trade-Unions. — Trade-unions,  viewed 
merely  as  Friendly  Societies,  insuring  their  members 
against  the  effects  of  sickness  or  accident,  promoting  good 
fellowship  and  exerting  a  certain  social  influence  through- 
out the  craft,  are,  of  course,  beyond  objection.  But  trade- 
unions,  as  bodies  seeking  to  legislate  concerning  the  ways 
in  which  industry  shall  be  carried  on,  and  to  enforce  that 
legislation  by  industrial  war,  are  subject  to  many  evil  lia- 
bilities. 

It  would  greatly  surprise  one  who  had  not  studied  the 
subject  to  read  the  foolish  and  mischievous  rules  which 
many  trade-unions  have  established  for  the  government  of 
their  own  members,  and  have  attempted  to  enforce  upon 
employers.  It  would  be  difficult  to  say,  in  regard  to  some 
of  these  codes,  whether  gross  ignorance  as  to  the  primary 
conditions  of  production,  or  a  spirit  which  delighted  in 
humiliating  and  harassing  employers,  had  played  the 
greater  part.     In  not  a  few  instances  such  regulations  have 


POLITICAL  ECONOMY.  279 

led  to  bitter  contests,  iu  which  the  interests  of  both  parties 
have  beeu  sacrificed. 

I  prefer  to  say  the  worst  that  is  to  be  said  regarding 
trade-unions,  at  the  beginning,  rather  than  at  the  end. 
In  addition  to  extreme  instances  of  folly  or  niisrhief-niak- 
ing,  there  is  a  great  deal  in  the  regulations  which  trade- 
unions,  in  America,  in  England  and  elsewhere,  have  under- 
taken to  enforce,  which  has  borne  with  unnecessary 
severity  upon  the  employing  class  ;  has  been  unfair  to  the 
outside  mass  of  labor,  waiting  to  be  employed,  and  lias 
been,  perhaps  in  no  sudden  and  violent  way,  prejudicial  to 
industr}^  and  to  the  well-being  of  the  community. 

255.  Education  through  Experience, — Whenever  a  body 
of  men  have  suddenly  come  into  the  possession  of  power, 
they  are  apt  to  deem  that  power  irresistible,  and  to  \n-e- 
sume  greatly  upon  it.  They  are  likely  to  fall  under  the 
influence  of  the  less  moderate  and  fair-minded  of  their 
own  number.  Only  experience  in  affairs,  with  both  good 
and  evil  fortune,  can  teach  men  to  use  power  without 
abusing  it.  That  experience  is  expensive;  but  it  is  the 
price  of  industrial,  as  of  political,  freedom. 

In  England,  where  trade-unions,  in  their  modern  form, 
first  arose,  there  has  been  a  steady  progress  towards  mod- 
eration, sound  judgment  and  fairness,  in  dealing  with 
questions  arising  between  laborer  and  employer.  IMie  char- 
acter of  the  men  chosen  as  leaders  has  continually  improved; 
their  constituencies  have  grown  in  knowledge,  in  prudence 
and  in  the  respect  paid  to  good  advice.  Strikes  have 
diminished  from  decade  to  decade;  the  proportion  of  dis- 
putes adjusted  by  arbitration  has  increased. 

Whether  there  is,  or  has  ever  been,  any  real  industrial 
occasion  for  trade-unions  in  the  United  States,  is  fairly  a 
matter  of  question.  There  certainly  was  none  before  the 
AVar  of  Secession.     If  such  un  occasion  has  since  arisen; 


280  POLITICAL  ECONOMY. 

if  the  welfare  of  the  laboring  classes  now  requires  the  ex- 
istence of  such  associations,  this  is  wholly  on  account  of 
the  vast  numbers  of  persons,  not  born  upon  our  soil,  not 
bred  under  our  laws,  not  educated  in  our  schools,  whom 
the  great  prosperity  of  the  country  and  the  force  of  our 
tariff-laws  have  drawn  across  the  ocean,  to  make  their  home 
here. 

256.  Strikes  Considered. — The  possible  utility  of  strikes 
has  long  been  the  subject  of  dispute.  There  was  a  time 
when  most  educated  men  held  that  strikes  Avere  only  and 
always  of  evil.  A  somewhat  different  view  has  recently 
come  to  prevail. 

Strikes  are  the  insurrections  of  labor.  Like  insurrec- 
tions in  the  political  body,  they  are  Justifiable  on  the  part 
of  men  whose  rights  or  whose  interests  are  threatened  with 
the  gravest  injury.  In  such  a  case,  no  one  should,  merely 
for  the  sake  of  peace,  wish  to  have  any  body  of  men  too 
weak  or  too  cowardly  to  resist.  For  myself,  I  believe  that 
the  fierce  series  of  industrial  revolts  which,  in  England, 
followed  the  repeal  of  the  Combinations  Acts  were  absolute- 
ly necessary  in  order  to  break  up  the  power  of  fear,  of  ti'a- 
dition  and  of  poverty,  by  which  the  minds  of  the  working 
classes  of  the  kingdom  had  been  so  long  held  in  bondage  ; 
absolutely  necessary,  in  order  to  create  among  the  laborers 
the  self-confidence,  the  social  ambition  and  the  sense  of 
mutual  interest,  which  were  needed  for  their  development 
into  industi'ial  and  political  manhood;  absolutely  neces- 
sary, in  order  to  teach  the  master  class  to  respect  their 
workmen;  absolutely  necessary,  in  order  to  secure  a  fair 
competition,  equal  on  the  two  sides. 

But,  while  strikes  are,  thus,  under  certain  circumstances, 
useful,  it  is  only  in  the  earlier  stages  of  industrial  progress. 
Strikes  have  no  positive  virtue.  They  do  not  create  wealth, 
but  only  destroy  it  or  impede  its  production.     As  soon  as 


POLITICAL  ECONOMY.  281 

a  body  of  workmen  liave  fairly  "  pulled  themselves  to- 
gether;" have  takeu  the  first  steps  iu  their  own  advance- 
ment ;  have  got  a  little  ahead  in  the  world,  they  ought  to 
find  better  means  than  strikes,  for  securing  their  further 
progress.  They  can  generally,  by  active,  energetic  com- 
petition, take  a  shorter  and  a  surer  way  to  economic  pros- 
perity, than  through  industrial  warfai-e. 

257.  Strikes,  the  Last  Resort. — Yet,  behind  all  friendly 
negotiations,  all  arbitrations  and  compromises,  the  strike 
will  always  remain  as  the  last  resort,  to  give  seriousness  and 
earnestness  to  the  efforts  of  both  parties  to  reach  satisfac- 
tory results,  by  mutual  agreement.  Perhaps  the  state  of 
things  which  at  the  present  time  exists  in  England  repre- 
sents, as  fairly  as  could  be  expected,  the  true  use  of  this 
agency.  Strikes  now  seldom  take  place  in  that  country. 
Both  parties  have  reason  to  dread  them  and  to  shrink  from 
them.  Long  and  bitter  experience  has  made  each  party 
painfully  anxious  to  avoid  that  resort.  In  consequence, 
the  claims  of  laborers  for  advance  of  wages  in  good  times, 
the  propositions  of  masters  for  reductions  of  wages  made 
necessary  by  bad  times,  are  considered  with  an  earnest  de- 
sire to  find  a  solution  satisfactory  to  both  parties. 

In  such  a  state  of  the  public  mind,  lightness,  arrogance 
and  wantonness,  disappear  from  the  debate.  The  working 
men  are  careful  not  to  put  forward  demands  which  they  can- 
not make  good,  for  that  would  injure  their  cause.  Masters 
are  anxious  to  concede  wiiatever  can  be  fairly  shown,  to  im- 
partial judges,  to  be  reasonable  and  right. 

Such  has  been  the  improvement  of  the  laborer's  condi- 
tion, through  the  causes  already  recited,  that  the  two  par- 
ties are  now  not  unevenly  matched,  in  point  of  power. 
Either  party  is  strong  enough  to  win  the  fight,  if  its  cause 
commands  the  sympathy,  the  respect,  and,  if  needed,  the 


282  POLITICAL  ECONOMY. 

pecaniary  support  of  the  outside  community.*  On  the 
other  hand,  neither  party  can  expect  to  win  if  it  is  mani- 
festly seeking  to  crowd  the  other  "into  a  corner,"  or  car- 
ries on  the  conflict  by  unfair  means.  This  is  what  should 
be.  Such  an  equilibrium  between  the  two  parties  in  inter- 
est, with  the  general  sense  of  all  disinterested  people  and 
all  lovers  of  fair-play  coming-in  to  turn  the  scale,  is,  per- 
haps, the  best  result  we  can  hope  to  attain,  while  the  or- 
ganization of  industry  remains  substantially  as  at  present. 

*  The  effect  of  this  has  been  shown,  to  a  most  remarkable  degree, 
in  the  great  London  strike  of  the  present  year — 1889 — when  nearly 
all  the  men  of  high  position,  in  society,  in  business,  and  in  the 
church,  gave  open  approval  and  support  to  the  laborers,  as  against 
the  dock-companies  ;  and  when  large  contributions  of  money  flowed 
in  from  &11  parts  of  the  kingdom,  and  even  from  foreign  countries. 


CHAPTER  XXVI. 

THE    "PAUPER-LABOR"    ARGUMENT    FOR 
"PROTECTION." 

258.  Are  Low  Wages  Infectious? — It  was  said,  in  para- 
graph 156,  that,  not  until  we  liad  passed  througli  tlie  whole 
theory  of  the  distribution  of  wealth,  should  we  be  in  a 
position  to  take  up,  to  advantage,  the  argument  for  Pi-o- 
tection  which  is  known  as  the  Pauper-Labor  argument. 
We  may  now  briefly  consider  this  subject. 

The  plea  made,  from  this  point  of  view,  in  favor  of  the 
policy  of  protection,  is  that  populations  among  which 
wages  are  high  and  a  respectable  standard  of  living  is  main- 
tained, cannot  freely  import  the  products  of  countries 
where  wages  are  low  and  the  laboring  classes  are  deeply 
degraded,  without,  in  time,  losing  their  own  economic 
position  of  vantage,  and  becoming  reduced  to  the  same  low 
level  as  the  least  fortunate  peoples  with  whom  they  trade. 

259,  Not  between  Non-Competing  Countries. — It  is,  in 
the  first  place,  to  be  noted  tliat  any  such  lamentable  result 
need  only  be  apprehended  in  case  the  more  fortunate  and 
the  less  fortunate  peoples  are  engaged  in  producing  the 
same  kind  of  goods,  or,  else,  goods  which  can  largely  be  sub- 
stituted for  each  other  in  use. 

For  example,  the  United  States  produce  no  tea.  It  can- 
not, therefore,  matter  to  us,  except  on  grounds  of  hu- 
manity, how  miserably  the  peoples  of  the  tea-producing 
countries  live.  If  wages  in  those  countries  are  low,  in 
proportion  to  the  loork  done,  the  people  of  the  United 


284  POLITICAL  ECONOMY. 

States  only  get  their  tea  the  cheaper  thereby.  In  the 
same  way,  the  tropical  fruits  which  come  liither  will  only 
cost  us  less,  the  more  miserably  those  who,  in  distant 
lands,  produce  them,  are  compensated  for  their  labor. 

The  evil  effects  which  are  anticipated  can  only  occur 
when  the  two  peoples  concerned  are  competing  with  each 
other  in  selling  the  same  kind  of  goods,  or  goods  so  nearly 
alike  in  their  uses  that  one  kind  can  be  substituted  for 
another.  Manifestly  this  is  so;  and  it  is  to  this  state  of 
things,  only,  that  the  Pauper-Labor  argument  applies. 

260.  How  about  Competing  Countries?— But,  if  two 
peoples  are  thus  competing,  is  there  danger  that  the  low 
wages  and  the  miserable  standard  of  living  in  one  will 
tend,  through  the  course  of  trade,  to  infect  the  other  ?  On 
this  point  two  things  are  to  be  said. 

First,  we  must  recur  to  the  principle  which  governs 
Normal  Price.  In  Chapter  X,  we  saw  that  the  normal 
price  of  any  kind  of  goods  is  fixed,  not  by  the  cost  of  pro- 
ducing this  or  that  portion  of  the  supply,  but  solely  by  the 
cost  of  producing  the  last  (considerable)  portion  of  the 
supply  which  is  produced  "at  the  greatest  disadvantage." 

If,  then,  a  foreign  nation  produces  a  portion  of  the  sup- 
ply at  greater  advantage  (let  us,  for  argument's  sake,  say, 
through  employers  being  able  to  hire  labor  at  lower  wages), 
this  will  not  necessarily  affect  the  price  of  those  goods. 
So  long  as  the  full  supply  of  that  kind  of  goods  requires 
that  any  considerable  portion  should  be  produced  at  a  com- 
parative disadvantage  (due,  let  us  say,  to  the  payment  of 
higher  wages)  in  other  countries,  the  price  will  be  deter- 
mined by  the  cost  of  production  in  these  countries,  and  not 
in  the  former  country.*     It  would  not,  then,  be  until  the 

*Here  we  have  a  sufficient  reply  to  the  objection  which  is  made 
to  allowing  "  convict  labor,"  in  prisons  and  reformatories,  to  be  em- 
ployed in  making  goods  for  the  market.     It  is  said  that,  as  this  laboi 


POLITICAL  ECONOMY.  285 

former  country  could  so  increase  its  production  as  to  bring 
forward  the  whole  supply  required,  that  prices  would  fall 
to  a  point  corresponding  to  the  low  wages  there  paid. 

Secondly.  But  do  low  wages  necessaril}^  or  generally, 
constitute  an  advantage  in  production,  which  would  allow 
the  countries  where  such  wages  j^revail  to  undersell  those 
in  which  high  wages  prevail  ?  On  this  point  we  refer  to 
considerations  pointed  out  in  Chapter  VI. 

261.  High  Wages:  Low  Cost  of  Production. — There  is 
apt  to  be  a  great  deal  of  confusion  in  the  public  mind  re- 
garding the  difEereuce  between  high  or  low  ivages,  and  a 
high  or  low  cost  of  production.  The  cost  of  production 
may  be  low  when  wages  are  high,  because  the  laborers  may 
be  so  energetic  and  efficient,  so  skilful  and  so  careful,  that 
the  employer  may  get  back  even  those  high  wages  in  the 
p. ice  of  his  product. 

The  cost  of  production  may  be  high  when  wages  are  low, 
because  the  labor  purchased  thereby  may  be  so  unintelli- 
gent, shiftless  and  wasteful,  so  lacking  in  energy  and  in- 
spiration, that  the  employer  may  find  it  difficult,  perhaps 
impossible,  to  get  back  those  wages,  mean  as  they  are,  in 
the  price  of  the  product.  Not  only  may  this  be  so;  but  it 
often,  and,  indeed,  generally,  is  so.  High  wages  are  com- 
monly, habitually,  found  associated  with  a  low  cost  of  pi'o- 
duction.  Low  wages  ai-e,  quite  as  generally,  found  asso- 
ciated with  a  high  cost  of  production. 

262.  Practical  Illustrations. — The  English  cotton-spinner 
leceives  as  many  shillings,  a  week,  as  the  East  India  cotton- 
costs  little  (the  State  being  obliged,  for  the  public  safet}-,  to  subsist 
the  convicts,  whether  employed  or  not),  tlie  wages  of  honest,  free 
labor  will  be  reduced  by  such  competition.  But  the  goods  produced 
by  convict  labor,  in  general,  constitute  a  small,  often  an  incon- 
siderably small,  part  of  the  supply.  Their  cost  of  production,  at  a 
relative  advantage  (through  a  low  cost  for  labor),  does  not,  therefore, 
fix  ihf  price. 


286  POLITICAL  ECONOMy. 

spinner  receives  pence;  yet  English  cottons  undersell  Indian 
cottons  in  Indian  markets.  Tlie  German  iron-maker  re- 
ceives two  or  three  times  as  much  wages  as  the  Eussian; 
yet  German  iron  has  to  he  kept  out  of  Eussia  by  heavy 
duties.  On  the  other  hand,  the  English  iron-maker  re- 
ceives two  or  three  times  the  wages  of  the  German;  yet 
Germany  feels  under  a  terrible  necessity  to  keep  out  the 
iron  of  England. 

Illustrations  might  be  multiplied;  but  one  more  will  suf- 
fice. In  a  report  made  by  Mr,  Blaine,  as  Secretary  of  State, 
June  25,  1881,  occurs  the  following  statement  regarding 
the  cotton  manufacture  of  England  and  the  United  States: 

"  It  thus  appears  that  each  American  operative  works-up 
as  much  raw  material  as  two  British  operatives  ;  turns  out 
nearly  11.50  worth  of  manufactures  to  the  British  opera- 
tive's 11  worth;  and,  even  in  piece-goods,  where  the  superior 
quality  and  weight  of  the  American  goods  are  so  marked, 
the  American  operative  turns  out  2.75  yards,  to  2.50  yards 
by  the  British  ojjerative." 

263.  The  Reason  for  the  Rule. — The  reason  for  this 
association  of  high  wages  with  low  cost  of  production  is 
perfectly  plain.  As  shown  in  Chapter  VI,  the  laborer's 
efficiency  is,  in  great  part,  the  immediate  product  of  his 
wages.  So  far  as  the  laborer's  efficiency  is  the  immediate 
product  of  his  wages,  that  efficiency  should  increase  at  least 
proportionally  with  his  wages.  In  fact,  it  will,  within  wide 
limits,  increase  more  than  proportionally,  very  much  more. 
An  underfed  and  ill-clothed  laborer  (and  most  of  the 
laborers  of  the  world  are  underfed  and  ill-clothed)  does  not 
develop  labor-power  in  proportion  to  the  meagre  subsist- 
ence allowed  him.  A  laborer  receiving  150  ounces  of  solid 
food  a  week,  can  perform  not  merely  one-half  more  of 
effective  work  than  a  laborer  receiving  100  ounces:  he 
can  probably  do  twice  as  much.     So  far  as  food,  alone,  is 


POLITICAL  ECONOMY.  287 

concerned,  it  is  unquestionably  true  that,  until  the  economic 
maximum  has  been  reached  (and  that  maximum  is  very 
unlikely  to  be  reached),  productive  power  is  developed  at 
a  continually  increasing  ratio.  So  far,  tlierefore,  as  wages 
go  to  food,  there  is  the  best  possible  reason  why  high  wages 
should  be  associated  with  a  low  cost  of  production. 

How  is  it  with  the  other  elements  of  personal  consump- 
tion, to  which  wages  are  applied  ?  That  the  same  principle 
operates  in  respect  to  that  portion  of  wages  which  is  ap- 
plied to  clothing  and  to  securing  comfortable  and  whole- 
some lodging  is,  I  believe,  abundantly  established.  But 
how  about  those  parts  of  wages  which  go  to  what  we  may 
call  the  decencies  and  luxuries  of  life?  Do  these  constitute 
a  force,  of  which  efficiency  in  labor  is  the  direct  and 
necessary  product  ? 

Generally  speaking,  it  has  been  shown,  on  the  widest  scale, 
that  the  self-respect,  the  domestic  and  social  ambition,  the 
hopefulness  and  cheerfulness,  which  arise  out  of  such  en- 
joyments and  the  further  prospect  of  such  enjoyments,  on 
the  part  of  the  laboring  classes,  generate  an  industrial  force 
(pars.  43-5)  which  as  fully  repays  its  cost  (that  is,  the 
price  of  such  enjoyments)  as  does  any  equal  expenditure 
upon  the  necessaries  of  life.  I  should  regard  any  person 
as  very  unfortunate  in  his  opportunities  for  the  observation 
of  human  life,  or  still  more  unfortunate  in  the  spirit  he 
brought  to  that  observation,  who  should  deny  that  the 
foregoing  statements  are  largely,  and  even  generally,  true. 

264.  Does  this  Rule  hold  Universally? — But  is  this  prin- 
ciple, that  industrial  efficiency  (within  reasonable  limits,  of 
course)  increases  at  least  })roportioiuxlly,  and  tends  to  in- 
crease more  than  proi^ortionally,  to  increase  of  wages, 
temperately  and  virtuously  applied,  a  principle  of  universal 
ap})licability  ?  Is  it  equally  true,  when  the  increase  is  large 
and  sudden,  coming  to  men  who  have  previously  lived  in 


288  POLITICAL  ECONOMY. 

squalor  and  who  have  comparatively  little  susceptibility  to 
moral  and  intellectual  motives,  as  when  the  increase  of 
wages  is  moderate  and  gradual,  coming  to  men  who  have 
heretofore  been  accustomed  to  decent  and  comfortable 
habits  of  living  ? 

Is  it  equally  true,  when  the  increase  of  wages  occurs 
within  a  branch  of  industry  where  the  work  is  such  as  gives 
little  opportunity  for  the  exercise  of  intelligence,  of  care  in 
the  use  of  tools  and  machines,  of  ingenuity  and  prudence 
in  the  prevention  of  waste,  and  where  the  rate  of  the 
laborer's  motions  is  practically  determined  by  the  movements 
of  machinery,  as  it  would  be,  were  tlie  increase  of  wages  to 
occur  within  a  branch  of  industiy  offering  large  possibili- 
ties to  the  physical,  moral  and  intellectual  activity  of  the 
laborer  ? 

265.  To  Come  Down  to  Particular  Cases. — Is  it  equally 
true  that  an  increase  of  wages  would  produce  a  correspond- 
ing increase  of  working  power,  in  the  case  of  Hungarians, 
or  of  Poles,  or  of  South  Italians,  as  in  the  case  of  native 
Americans  or  of  Scotchmen  or  of  Saxons  ?  Is  it  equally 
true  in  case  of  men  emj)loyed  in  a  cotton  mill,  as  in  the 
case  of  men  working  in  a  shoe  shop,  or  a  watch  factory,  or 
a  machine  shop  ?  If  this  be  not  so,  I  am  not  sure  that  the 
answer  which  the  free  trader  has  habitually  made  to  the 
protectionist,  at  this  point,  is  quite  as  conclusive  as  people 
of  my  own  general  way  of  thinking  have  been  accustomed 
to  regard  it. 

As  to  the  universality  of  the  principle,  that  high  wages 
mean  a  low  cost  of  production,  I  confess  I  am  not  confident. 
That  among  a  generous  and  well-bred  people,  socially  ambi- 
tious, self-respectful  and  intelligent,  successive  advances  of 
wages,  by  moderate  degrees,  would,  up  to  a  certain,  high, 
point,  generate   increments   of  productive  force   propor- 


POLITICAL  ECONOMY,  289 

tional,  or   even   more   than   proportional,  I  entertain   no 
(l()u1)t  whatsoever. 

266.  Conclusion. — If  the  proposition  of  the  free  trader, 
that  industrial  eflBciency  increases  correspondingly  to  in- 
crease of  wages,  is  universally  true,  then  the  protectionist 
lias  no  ground  to  stand  upon.  No  case  exists  such  as  he 
assumes.  If  American  wages,  for  example,  are  exception- 
ally high,  then  it  must  be  true  that  the  foreign  manufac- 
turer pays  as  much,  and  probably  more,  for   the   same 

AMOUNT   OF   AVORK,  OF   THE    SAME    KIXD   AND   QUALITY. 

If,  on  the  other  hand,  the  principle  laid  down  be  not 
universally  true,  then  the  case  which  the  protectionist  has  in 
mind  may  arise,  viz.,  where  the  American  manufacturer,  in 
branches  of  industry  peculiarly  unresponsive  to  the  physical, 
intellectual  and  moral  invigoration  of  their  operatives,  does, 
in  fact,  pay  higher  wages,  for  a  given  amount  and  kind  of 
work,  than  is  paid  abroad.  In  this  case,  there  would  be  a 
real,  no  longer  a  merely  nominal,  disadvantage  in  the  cost 
of  production,  on  the  part  of  American  manufacturers. 
That  disadvantage  the  protectionist  would  seek  to  counter- 
balance, by  weighting  down  the  corresponding  foreign 
products  by  means  of  customs-duties. 

But,  in  such  a  case,  the  question  would  arise  as  to  the 
wisdom  of  the  legislation  which  brought  such  industries 
into  being,  in  a  country  whose  people  were  fitted  for  higher 
work,  and  which  invited,  and,  in  a  sense,  compelled,  to 
come  to  our  shores  such  large  numbers  of  persons  whose 
descent,  education  and  early  experiences  only  fit  them  to 
take  part  in  industries  which  are,  as  we  said,  "peculiarly 
unresponsive  to  the  physie;d.  intellectual  and  moral  invig- 
oration of  their  operatives"  If  government  lets  industry 
alone,  in  a  country  having  an  intelligent,  spirited  and 
frugal  population,  only  those  branches  of  manufacture  will 
arise  which  are  of  a  nature  to  allow  relatively  high  wages 


290  POLITICAL  ECONOMY. 

to  be  paid  without  increasing  the  actual  cost  of  produc- 
tion. 

It  will  be  seen  that,  in  the  view  taken  above,  protection 
is,  at  the  best,  only  a  means  of  defending  the  working 
classes  against  the  effects  of  a  competition  to  which  they 
are  unequal,  by  reason  of  their  ignorance,  or  indolence,  or 
lack  of  self-respect  and  social  ambition,  or  by  reason  of 
abuses  and  wrongs  to  which  they  have  been  subjected  in 
the  past.  This  chapter,  then,  is  really  a  part  of  Chapter 
XXV.  Among  a  generous,  self-respectful,  well-bred  and 
well-educated  people,  applying  themselves  to  the  higher 
departments  of  industry,  no  such  artificial  protection,  or 
support,  will  be  required. 


CHAPTER  XXVII. 
THE  CONSUMPTION   OF  WEALTH 

267.  The  Meaning  of  the  Term.— By  the  term,  Con- 
sumption, in  political  economy,  we  signify  tlie  use  made 
of  wealth.  We  have  seen  how  wealth  is  produced  and  ex- 
changed. We  have  inquired  respecting  the  forces  which 
distribute  tlie  product  of  industry.  We  are  now  to  ask, 
what  men  shall  do  with  the  shares  they  receive  in  that 
distribution. 

The  consumption  of  wealth  is  not  identical  with  its 
destruction.  To  be  sure,  most  forms  of  wealth  that  are 
put  to  use  do,  sooner  or  later,  disappear  ;  but  to  most  of 
them  this  would  happen,  in  time,  whether  they  were  used 
or  not.  We  do  not  wait  until  an  item  of  wealth  has  been 
destroyed  by  use,  before  we  speak  of  it  as  consumed.  It 
is,  in  the  economic  sense,  consumed  when  it  is  j^ut  to  its 
destined  use,  although  the  material  of  it  may  last  for  a 
long  time  thereaftei".  Cloth  is  consumed,  as  cloth,  when 
it  is  made  into  garments.  The  garments  are  consumed,  in 
the  economic  sense,  when  they  pass  to  their  destined 
wearer,  although  they  may  still  be  good  for  years.  Iron 
beams  and  bars  and  rods  are,  in  the  economic  sense,  con- 
sumed when  they  are  built  into  the  frame  of  a  bridge. 
The  bridge,  however,  remains  to  carry  passengers  and 
freight  for  generations. 

268.  The  Importance  of  Consumption. — Many,  indeed 
most,  economists  have  left  consumption  altogether  out  of 


292  POLITICAL  ECONOMY. 

their  treatises,  holding  that  it  was  not  their  business  to  go 
into  that  subject.  But,  surely,  if  we  are  studying  political 
economy  because  of  the  importance  of  wealth  to  human 
welfare,  or  to  the  strength  and  stability  of  the  State,  we 
cannot  afford  to  pass-by  the  questions  of  consumption.  In 
the  case  of  any  people,  the  ways  in  which  they  are  con- 
suming their  wealth — that  is,  the  uses  to  which  they  are 
putting  it — are  of  far  more  consequence  than  the  present 
amount  of  that  wealth.  In  the  case  of  a  nation,  as  of  an 
individual,  very  large  accumulations,  with  foolish  or  vi- 
cious modes  of  expenditure,  may  intimate  a  less  prosperous 
future  than  a  moderate  stock,  which  is  being  used  temper- 
ately and  wisely. 

Existing  wealth  may  be  applied  to  ends  which  inspire 
social  ambition,  which  restrict  population  within  limits 
consistent  with  the  general  welfare,  which  increase  the 
efficiency  of  the  laborer  and  supply  instruments  for  mak- 
ing his  labor  still  more  productive  ;  or  it  may  be  used  in 
ways  which  encourage  the  undue  increase  of  population, 
bringing-in  poverty,  squalor  and  disease  ;  in  ways  which 
debauch  the  laborer,  morally  and  physically,  striking  at 
both  his  power  and  his  disposition  to  work  hard  and  con- 
tinuously. The  completeness  with  which  the  French  peo- 
ple, through  their  temperance,  frugality  and  industry, 
made  up  in  a  few  years  the  terrific  fines  and  losses  of  the 
German  war  (1870-1),  affords  a  very  striking  illustration 
of  the  virtue  there  is  in  the  labor-power  of  a  country  rap- 
idly to  replace  its  capital,  provided  only  a  right  consump- 
tion of  wealth  be  assured. 

The  secret  of  a  nation's  rise  or  decline  in  prosperity  is 
not  to  be  found  chiefly  in  its  situation  and  natural  advan- 
tages for  commerce  ;  not  in  its  soil  and  climate ;  not  in  its 
good  or  evil  fortune  ;  not  in  the  malice  of  its  enemies  or  in 
the  help  of  its  allies.     That  secret  lies  in  the  use  which 


POLITICAL  ECONOMY.  293 

the  nation  makes  of  the  wealth,  be  that  ample  or  scanty, 
which  its  powers  and  resources  enable  it  to  produce. 

"  What  will  he  do  with  it  ?"  is  the  question  which  is 
asked  (not  spoken)  of  every  man,  at  every  turn  of  life  : 
what  will  he  do  with  the  new  opportunity :  how  will  he 
meet  the  new  danger  :  to  what  use  will  he  put  the  treasure 
that  has  fallen  at  his  feet  ?  Eminently,  in  regard  to  tlie 
wealth  of  nations,  "  What  will  they  do  with  it  T'  is  the 
question  of  questions. 

269.  Population. — The  use  which,  in  a  primitive  com- 
munit}',  is  most  likely  to  be  made  of  existing  wealth  is  to 
support  an  increasing  population.  Let  us  take  the  case  of 
a  tribe,  occupying  a  district  of  moderate  extent,  cultivat- 
ing the  soil  of  the  fertile  valley  of  their  native  stream, 
pasturing  their  cattle  and  sheep  on  the  mountain  sides, 
and  practising  certain  rude  mechanic  arts.  Now,  in  such 
a  state,  iJie  instincts  and  appetites  which  lead  to  the 
multiplication  of  numbers  will  be  those  which  are  earliest 
and  most  strongly  felt,  after  the  appetites  which  crave 
food  and  warmth.  The  food  may  be  coarse,  all  of  one 
kind,  prepared  without  skill,  eaten  on  the  ground.  The 
desired  warmth  may  be  obtained  in  close  hovels,  or  possi- 
bly in  caves,  amid  the  foulest  of  air  and  the  grossest  of 
filth.  These  things  matter  not.  As  soon  as  food  and 
warmtli  have  been  obtained,  even  in  such  a  miserable  way, 
the  appetites  which  lead  men  to  marry  and  to  breed  after 
their  kind  will  make  themselves  felt  ;  and  will  thereafter 
practically  take  possession  of  all  the  remaining  wealth  of 
the  community,  to  use  it  for  their  own  purposes. 

Now,  the  capabilities  of  human  increase  are  vastly  in 
excess  of  the  capability  of  supporting  life,  within  any  defined 
field.  Mankind  have,  over  and  over  again,  shown  that, 
under  favorable  conditions,  po{)ulation  can  be  doubled  in 
twenty-five,  in  twenty-two,  and,  perhaps,  even  in  twenty 


294  PCLITIGAL  ECONOMY. 

years,  in  spite  of  sickness,  accidents  and  premature  deaths. 
If,  then,  the  tribe  we  are  speaking  of  numbers  one  thou- 
sand, it  may,  at  the  end  of  one  century  (assuming  that 
population  doubles  itself  in  twenty-five  years)  contain  six- 
teen thousand  souls.  Had  the  valley  and  the  mountain 
sides  been  but  sparsely  settled  at  the  beginning  of  the  cen- 
tury, the  sixteen  thousand,  who  would  occupy  these  seats 
at  the  end  of  the  century,  might  be  no  more  than  a  com- 
fortable population.  Indeed,  the  sixteen  thousand  might, 
owing  to  the  advantages  of  the  division  of  labor,  live  bet- 
ter than  the  one  thousand  did. 

But,  even  if  so,  tlie  quarter  of  a  million  of  persons  (256,- 
000),  who,  at  the  end  of  another  century,  would  take  their 
place,  should  increase  go  on  in  a  geometrical  ratio,  would 
probably  be  reduced  to  the  last  stages  of  human  misery, 
through  the  operation  of  the  principle  of  Diminishing  Ee- 
turus  in  agriculture  (Chap.  V).  Did  famine,  fever  or  inter- 
necine war  not  come  in  to  check  the  growth  of  population, 
the  quarter  of  a  million  would,  at  the  end  of  still  another 
century,  have  grown  to  (4,096,000)  more  than  four  millions! 
That  population  would,  of  course,  be  impossible.  To  pre- 
vent such  a  result,  famine  and  the  fevers  which  feed  on 
the  half-famished,  would,  every  year  or  every  few  years, 
sweep  through  the  valley,  cutting-off  thousands  at  a  time; 
or,  else,  the  unhappy  inhabitants,  driven  to  despair  through 
lack  of  food,  would  prey  upon  each  other,  or,  under  some 
bold  leader,  would  pour  out  of  their  valley,  a  great  devas- 
tating horde,  to  fight  with  neighboring  tribes  for  the  pos- 
session of  their  land. 

Such  are  the  capabilities  of  human  increase.*     If,  then. 


*  The  law  of  population,  thus  briefly  set  forth,  bears  the  name  of 
Mr.  Malthus,  an  English  clergyman.  The  doctrine  is  called  Mal- 
thusianism.     Mr.  Malthus  was,  at  the  time,  roundly  abused  for  his 


POLITICAL  ECONOMY  295 

the  instincts  and  appetites  wliich  lead  to  the  multiplication 
of  numbers  are  to  remain  (as  the}'  always  are  at  the  be- 
ginning) the  appetites  which  come  next,  in  order  and  in 
strength,  after  the  desire  for  food  and  warmth,  tlie  history 
of  every  tribe  of  men  will  be  what  we  have  described,  and 
no  other.  All  the  wealth  which  is  left-over,  after  feeding, 
clothing  and  housing,  in  the  meanest  manner,  the  existing 
population,  will  be  continually  used-up  in  the  attempt  to 
support  an  increasing  population.  There  is,  speaking 
broadly,  no  other  consumption  of  wealth  known  to  the 
savage  or  the  barbarous  man.  Even  so,  as  we  saw,  all  the 
wealth  available  will  not  suffice  to  carry-on  the  natural 
process  for  more  than  a  century  or  two,  without  giving  risd 
to  the  most  hideous  physical  evils. 

270.  Higher  Economic  Desires. —  The  question,  then, 
whether  there  is  to  be  any  other  consumption  of  wealth — 
whether,  in  fact,  the  beginnings  of  civilization  are  to  be- 
come possible — is  the  question,  whether  other  economic  de- 
sires shall  come  to  force  themselves  in  front  of  the  appetites 
which  lead  to  the  multiplication  of  numbers.  If  this  is  not 
to  take  place,  no  economic  improvement  will  be  possible; 
and  all  religious  and  social  influences  for  the  better,  which 
may  be  exerted  from  the  outside  upon  any  such  tribe,  will 
be  feel)le  and  transient,  like  marks  made  upon  the  sands 
which  have  been  uncovered  by  the  tide. 

Observe  :  there  are  two  reasons  why  it  is  to  be  desired 
that  other  economic  desires  should  come  in,  and,  in  somo 
degree,  crowd-out  the  appetites  which  lead  to  the  multi- 
plication of  numbers. 

plain  speaking.  But  people  have  now  learned  that  the  whole  truth 
should  be  spoken  on  this  subject.  If  men  will  breed  like  vermin, 
they  must  die  like  vermin.  If  men  will  be  "lords  of  the  universe," 
they  first  must  be  lords  of  themselves.  If  they  would  be  mastere 
of  their  conditions,  they  must  be  masters  of  their  appetites. 


296  POLITICAL  ECONOMY. 

First,  simply  because  only  in  this  way  is  the  frightful 
round  of  over-jDOiDuhition,  famine,  disease  and  internecine 
war,  with  all  its  chaos  of  horrors,  to  be  prevented.  From 
this  point  of  view,  it  does  not  matter  whether  the  new 
economic  desires  are  higher  in  their  moral  and  social  char- 
acter, or  not.  Almost  anything  is  better  than  that  the 
increase  of  population  should  not  be,  by  some  cause, 
restrained.  Secondly,  because  such  other  economic  desires 
are  likely  to  be,  or  in  time  to  become,  higher  and  more 
beneficent  than  those  which  they  replace. 

And,  yet,  those  new  desires  are  not  likely  to  be,  at 
first,  much  higher.  Mankind  do  not  make  progress  by 
leaps,  but,  at  the  best,  by  slow  and  painful  steps,  which 
often  slip,  and  often  lead  to  falls.  No  great  advancement 
is  to  be  expected,  in  the  beginning,  from  people  in  the 
stage  of  life  which  we  have  been  considering. 

The  early  economic  desires  of  different  communities  vary 
greatly.  In  one,  the  first  want  felt,  after  the  absolute 
necessaries  of  life  are  obtained,  is  of  ornament  and  decora- 
tion. Even  when  men  are  hardly  covered  from  the  cold 
and  scantily  nourished,  the  passion  for  display  makes  its 
appearance.  In  another  community,  the  first  want  felt, 
after  the  claims  of  bare  subsistence  are  met,  is  of  a 
store  for  the  future,  as  a  provision  against  the  caprices 
of  the  seasons  and  the  casualties  of  life.  The  first  want 
emerging  in  the  life  of  another  community  may  be  of 
wealth  to  be  expended  in  worship  and  in  honor  of  the 
national  or  local  deity.  Millions  of  men  may  consent  to 
live  squalidly,  in  order  that  a  few  temples  may  shine  like 
the  sun,  their  altars  smoke  with  unending  sacrifices,  their 
priests  walk  resplendent  witli  embroidered  and  jewelled 
vestments.  In  still  other  communities,  the  new  want  may 
take  the  form  of  a  desire  for  a  diversified  diet,  or  for  leis- 
ure, or  for  some  costly  drug  or  drink,  like  the  opium  of 


POLITICAL  ECONOMY.  297 

the  East  Indian  or  the  Chinaman,  or  the  *' fire-water"  of 
the  Nortli  American  Indian. 

271.  A  Diversified  Diet. — Doubtless,  the  want  which  has 
been  efficient  on  tlie  largest  scale,  at  once  in  promoting 
labor  and  in  restraining  population,  is  the  craving  for  a 
diversified  diet.  Once  let  the  sole  diet  of  the  barbarian, 
be  it  fish,  or  flesh,  or  grain,  be  crossed  by  other  species  of 
food,  exciting  the  pleasure  whicli  resides  in  variety;  and 
an  economic  force  has  been  introduced  into  the  life  of  the 
community  which  is  capable  of  producing  mighty  results. 
Probably  this  has  been  tlie  lever  by  which  more  tribes  and 
races  of  men  have  beeu  raised  and  kept,  one  degree  at 
least,  above  the  condition  of  a  population  pressing  all  the 
time  upon  the  limits  of  subsistence,  than  by  any  other. 

Although  a  diversified  diet  doubtless  contributes,  in  some 
degree,  to  health  and  vigor,  it  is  yet  a  pure  luxury,  in  the 
sense  that  it  is  not  sought  upon  tliat  account,  but  wholly 
for  the  gratification  of  appetite.  It  will  seem  strange  to 
the  reader  that  a  desire  for  objects  of  luxury  should  be 
spoken  of  as  having  greater  power  to  promote  effort  and  to 
check  population  than  the  fear  of  privation  and  actual 
misery.  Yet  so  it  is ;  and,  as  we  go  up  the  scale  of  human 
wants  and  desires,  we  shall  find  that,  in  general,  the  higher 
the  want  or  desire,  morally  considered,  the  stronger  it 
proves  to  be.  In  an  advanced  civilization,  mere  senti- 
ments and  tastes,  which  involve  the  gratification  of  no 
physical  sense,  impel  men  to  the  most  painful  and  pro- 
tracted exertions,  and  hold  in  check  the  strongest  passions 
of  the  lower  nature. 

272.  A.  Rising  Scale  of  Expenditure. — Contemplating  a 
community  which  has  grown  al)ove  the  low  desii'es  which 
control  and  completely  master  the  l)arb:u'iun;  and  which 
has,  by  the  foi-ce  of  higher  personal  wants,  attained  the 
power  of  checking  population,  otherwise  than  through  dis- 


298  polttical  economy. 

ease  and  famine,  we  say  tliat  the  entire  future  of  such  a 
community  depends  upon  the  further  growth  of  economic 
wants  among  its  members.  If  they  are  to  remain  content 
with  a  low  scale  of  personal  expenditure,  they  will  waste  in 
idleness  or  sport  all  the  time  which  is  gained  for  them  by 
improvements  in  the  arts  and  by  the  discovery  of  new  re- 
sources in  nature. 

There  have,  indeed,  been  tribes  of  men  who  could  remain 
on  such  a  low  scale  of  living,  and  yet  cultivate  arts,  letters 
and  philosophy,  and  apply  their  leisure  to  social  and  intel- 
lectual improvement.  Even  so,  however,  such  a  civiliza- 
tion is  highly  transient ;  liable  to  be  swept  away  by  every 
wave  of  foreign  force,  or  broken-up  by  a  single  outburst  of 
domestic  sedition.  Generally  speaking,  it  is  only  the  na* 
tions  that  are  eager  to  improve  their  material  condition 
which  cultivate  the  arts  and  increase  in  knowledge  and  in 
refinement.  It  is  such  nations,  alone,  that  can  found  a 
permanent  civilization.     The  reason  for  this  is  threefold. 

First,  the  physical  and  mental  activity  to  which  men  are 
incited  by  the  desire  for  greater  wealth,  with  which  to 
purchase  more  of  the  comforts,  decencies  and  luxuries  of 
life,  constitutes,  itself,  the  greatest  of  all  means  of  intel- 
lectual and  moral  education.  By  it,  the  faculties  of  the 
barbarian  are  awakened  from  a  torpor  which  is  akin  to 
death;  are  stimulated  to  the  highest  pitch;  are  trained  by 
aj)propriate  exercises,  through  which  they  continually  gain 
in  strength,  in  suppleness,  in  persistency.  By  it,  the  low 
desires,  the  brutal  cravings,  the  gross  vices  of  the  barba- 
rian are  repressed;  while  nobler  motives  and  higher  tastes 
come  into  consciousness  and  become,  increasingly,  the  law 
of  life.  It  is  in  this  way  that  the  small-])rained  have  grown 
into  the  large-brained  races.  It  is  in  this  way  that  timid 
and  indolent  peoples  have  developed  into  peoples  that  de- 
light in  encountering  danger,  in  overcoming  difficulties,  in 


POLITICAL  ECONOMY.  299 

enduring  hardships ;  and  whose  spirit  mounts  with  oppo- 
sition. 

273.  Civilization.— Secondly,  wealth,  in  its  various  forms, 
furnislies  the  tools  and  the  materials  for  the  finer  arts  and 
the  higher  studies  ;  furnishes,  also,  the  n^eans  by  which  the 
results  of  those  arts  and  studies  are  extended  and  brought 
to  the  knowledge  aud  enjoyment  of  all. 

Thirdl}^,  every  civilization  which  is  not  embodied  in  in- 
stitutions, in  permanent  structures,  in  accumulated  re- 
sources, is  always  liable  to  fall  rapidly  away,  under  the 
influence  of  physical  disaster,  or  foreign  hostility,  or 
through  the  mere  force  of  weai'iness  and  disgust.  It  is 
institutions,  permanent  structures,  accumulated  resources, 
which  enable  each  successive  generation  to  hold  firmly  on 
to  the  past,  to  go  strongly  through  its  own  difficulties  and 
dangers,  and  to  transmit  the  arts,  tastes  and  powers  which 
it  has  inherited,  unimpaired  to  its  natural  successors. 

Man  is  distinguished  from  the  other  orders  of  animals 
by  his  susceptibility  to  new  desires.  Those  desires  may,  by 
appropriate  influences  and  by  the  course  of  experience,  be 
made  to  increase  almost  indefinitely,  both  in  number  and 
in  variety;  and  it  is  generally  true  that  the  latest  desire 
becomes  the  most  urgent  and  persistent  of  the  series.  The 
man  of  the  modern  state  toils,  night  and  day,  to  procure 
for  his  children  articles  which  do  not  minister  to  any  bod- 
ily sense,  but  are  required  by  the  existing  standard  of  social 
decency.  The  man  of  the  primitive  state  will  run  the  risk 
of  suffering  and  famine,  to  him  and  his,  rather  than  make 
the  most  moderate  exertions  and  sacrifices  to  provide  a 
store  for  the  future. 

In  this  matter,  as  in  everything  else,  ''it  is  the  first  step 
which  costs."  The  greatest  difficulty  is  in  introducing 
into  the  life  of  a  people;  any  tastes  or  desii'cs,  whatever, 
beyond  those  fundamental  wants  of  which  we  have  spoken. 


300  POLITICAL  ECONOMY. 

Once  let  a  community  be  lifted  out  of  the  mire  of  exist- 
ence, by  this  lever,  and  new  wants  will  come,  thick  and 
fast,  upon  them.  As  soon  as  any  new  want  is  felt,  their  con- 
dition will  seem  to  them  intolerable,  unless  that  want  can 
l)e  supplied  ;  and,  so,  the  elevating  and  ennobling  process 
will  go  on,  without  a  stop,  unless  some  great  catastrophe, 
or  some  great  debasing  cause,  shall  enter  to  throw  them 
back  into  hopeless  misery  and  social  degradation. 


CHAPTER  XXVIII. 
SOME  MISTAKEN  NOTIONS  ABOUT  CONSUMPTION. 

274.  Prevalence  of  False  Notions. — There  is  probably  no 
subject  in  political  economy  which  is  so  much  beset  with 
false  notions  as  is  the  consumption  of  wealth.  Persons 
who  have  never  thought  much  about  the  production,  the 
exchange  or  the  distribution  of  wealth,  are  almost  certain 
to  have  their  own  ideas  about  its  consumption  ;  and  these 
ideas  are  very  apt  to  be  erroneous.  There  would  seem  to 
be  something  in  the  nature  of  the  subject  which  makes  it 
difficult  for  men  to  see  more  than  one  side  of  any  question 
which  concerns  consumption. 

275.  The  Destruction  of  Wealth. — We  have  seen  that 
most  forms  of  wealth  are  necessarily  destroyed,  sooner  or 
later,  by  being  used.  Such  a  destruction  of  wealth  is,  of 
course,  neither  to  be  rejoiced  over  nor  to  be  regretted, 
since  these  forms  of  wealth  are  produced  with  this  very 
result  in  view.  But  there  is,  among  very  large  numbers 
of  persons  in  every  community,  a  disposition  to  look  at  the 
premature  destruction  of  wealth  by  any  cause,  as  something 
either  good  in  itself  or,  at  any  rate,  having  advantages  to 
counterbalance  the  loss  sustained.  In  the  common  pbrase, 
it  is  supposed  to  "create  a  demand  for  labor ;"  to  "en- 
courage industry,"  etc. 

The  notion  mentioned  above  is  seldom  found  among 
agriculturists.  Men  who  have  taken  part  in  raising  crops 
are  not  much  disposed  to  look  at  the  destruction  of  those 

301 


302  POLITICAL  ECONOMY. 

crops,  or  of  the  barns  which  shelter  tliem,  or  of  farm- 
ing implements  or  machines,  as  bringing  good  to  any  one. 
Among  commercial  and  manufacturing  populations,  how- 
ever, this  belief  is  very  prevalent.  Working  men  are 
apt  to  hold  it ;  domestic  servants  are  perfectly  sure  that 
their  breakage  "  makes  trade  good  ;"  even  many  highly 
educated  people  cannot  free  themselves  from  the  instinctive 
feeling  that  the  abrupt  removal  of  existing  wealth  quickens 
industry  and  promotes  the  general  welfare. 

276.  Destruction  Sometimes  Means  the  Removal  of  Ob- 
struction.— There  are,  of  course,  situations,  where  the  de- 
struction of  wealth  may  have  the  efPect  to  secure  a  larger 
production,  in  the  future.  Thus,  a  man  may  occupy  a 
*^  water  privilege"  with  an  old-fashioned  badly-built  mill, 
which  he  cannot  find  it  in  his  heart  to  tear  down.  He  may 
know  that  it  would  be  better  to  do  so ;  but  he  puts  it  off 
from  year  to  year,  doing  what  he  can  with  the  old  mill  and 
its  old  machinery.  Every  year  he  gets  further  and  further 
behind,  as  new  and  better  mills  are  built  all  around  him. 
One  night  a  fire  breaks  out ;  and  a  year  later,  a  fine,  large, 
new  mill  occupies  the  site,  in  which  a  great  deal  more  and 
a  great  deal  better  work  can  be  done.  It  is  not  unlikely 
that,  in  five  or  ten  years,  the  manufacturer,  himself,  will 
be  richer  than  he  ever  could  have  been  with  the  old  mill  ; 
while  a  larger  number  of  operatives  are  engaged,  at  higher 
wages,  producing  goods  which  are  required  for  the  clothing 
of  the  community. 

Again,  two  towns,  on  opposite  sides  of  a  river,  may  long 
have  put-up  with  a  mean,  narrow,  unsafe  and  inconvenient 
bridge,  which  has  always  been  an  obstruction  to  traffic.  A 
flood  comes  and  carries  the  bridge  down  the  river  :  where- 
upon the  towns  unite  in  building  one  fully  suited  to  their 
needs,  broad  and  firm,  with  ample  approaches  from  both 
sides.     This  may  give  such  an  expansion  to  the  industrial 


POLITICAL  ECONOMY.  303 

activity  of  both  towns  as,  in  a  sliort  time,  to  more  than 
repay  the  cost  of  the  new  bridge. 

Still  again,  it  is  an  undoubted  fact  that  the  destruction, 
by  fire,  of  the  old  and  crooked  parts  of  certain  cities,  filled 
with  "rookeries'"  and  tumble-down  houses,  repulsive  in 
aspect  and  almost  impassable  to  traffic,  has  led  to  a  large 
increase  of  wealth.  It  had  long  been  known  that  that 
"quarter"  was  a  nuisance  and  an  obstruction  to  the  growth 
of  the  city  and  to  the  development  of  its  trade.  But  each 
propert3'-h older  felt  that  it  was  of  no  use  for  him  to  pull- 
down his  own  miserable  houses  and  to  build  better,  so  long 
as  his  neighbors  were  not  ready  to  do  the  same.  Thus,  one 
man  waited  for  another  ;  while  all  were  disposed  to  put-off 
the  day  of  making  improvements  at  so  great  an  expense. 
A  conflagration  comes;  burns  down -the  rickety  houses,  foul 
with  the  accumulated  filth  of  generations ;  and  in  a  few 
years  that  wretched  quarter  has  been  replaced  by  broad 
streets  and  convenient  and  wholesome  houses.  The  city  is 
wealthier  and  healthier  for  the  change;  and  even  the  indi- 
vidual property-holders  may  be  richer  than  before. 

277.  What  We  See  and  What  We  Don't  See.— But  the 
disposition  to  rejoice  in  the  destruction  of  wealtli  is  not  con- 
fined to  instances  like  the  foregoing,  where  nuisances  and 
obstructions  are  removed.  It  extends  to  cases  where  the 
existing  forms  of  wealth  were  well  answering  the  purposes 
for  which  they  were  created.  That  disposition  is  due  to  the 
fact  that  those  who  rejoice  see  only  one  side  of  the  effect. 
They  see  that,  where  wealth  is  destroyed,  other  wealth  gen- 
erally flows-in,  to  take  its  place  ;  and  labor  and  capital  are 
soon  actively,  perhaps  hurriedly,  employed  in  repairing 
the  waste.  What  they  do  not  see  is  that  this  labor  and 
capital  are  drawn  from  other  avocations  and  from  other 
places,  where,  but  for  the  fire  or  the  flood,  they  would  be 
engaged,  though  without  making  so  much  stir,  in  produc- 


304  POLITICAL  ECONOMY. 

ing  new  forms  of  wealth,  wholly  in  addition  to  those  which 
have  been  destroyed,  thns  increasing  the  total  sum  of 
wealth  to  be  enjoyed  by  the  community. 

278.  Luxurious  Consumption. — Regarding  the  consump- 
tion of  wealth  in  what  we  may  call,  without  attempting 
closely  to  define  it.  Luxury,  two  popular  notions  are  preva- 
lent. These  two  notions  are  largely  opposed  to  each  other ; 
yet  they  may  both  be  equally  erroneous.  Both  are  often 
held  by  the  same  persons,  at  different  times,  according  to 
the  mood  in  which  their  minds  are,  at  the  moment. 

One  false  notion  concerning  the  consumption  of  wealth 
is  that  which  regards  all  personal  expenditure  which  is  very 
greatly  above  what  the  mass  of  people  can  indulge  in,  as 
an  injury  to  the  community  and  as  a  wrong  to  the  laboring 
classes  in  particulai'.  Now,  in  order  to  get  a  plain  view 
of  this  matter,  let  us  take  the  case  of  a  manufacturer  who 
produces  goods  to  the  value  of  five  hundred  thousand  dollars 
annually,  out  of  which  he  realizes  a  profit  of  twenty-five 
thousand  dollars.  Let  it  be  conceded  that  five  thousand 
dollars  would  furnish  decent  and  comfortable  subsistence 
for  the  manufacturer's  family,  including  proper  education 
for  his  children.  But  he  is  not  satisfied  with  so  moderate  a 
scale  of  personal  expenditure.  He  spends  another  five 
thousand  dollars  upon  things  which,  while  they  are  not  es- 
sential to  comfort  and  decency,  are  yet  not  so  far  out  of 
the  common  as  to  attract  public  attention  and  to  make  him 
and  his  family  conspicuous.  In  addition  to  all  the  fore- 
going, he  expends  ten  thousand  dollars  in  display  and  self- 
glorification,  in  luxuries  of  the  most  extravagant  cost, 
upon  pleasures  of  the  most  ephemeral  nature.  This  leaves 
him  but  five  thousand  dollars  to  put  into  his  business,  or 
to  lay  up  in  bank. 

Now,  it  does  not  need  to  be  said  that  it  would  be  better 
were  the  manufacturer  in  question  wise  enough  to  save  a 


POLITICAL  ECONOMY.  305 

larger  portion  of  his  profits,  either  as  a  means  of  increas- 
ing his  business,  or  as  a  reserve  against  tlie  future.  Again, 
it  does  not  need  to  be  said  that  it  would  be  better,  in  case  he 
is  to  expend  twenty  thousand  dollars  of  his  income,  were  he 
wise  and  generous  enough  to  spend  that  sum  in  ways  which 
would  bring  more  good  to  his  fellow  men,  do  more  credit 
to  himself,  and  afford  a  better  training  for  his  children. 
But  the  question  is  not,  whether  something  much  better 
might  not  have  been  done  with  this  amount  of  wealth,  but 
whether  such  a  use  of  it  constitutes  a  positive  injury  to  the 
community,  or  is,  in  any  sense  whatsoever,  a  wrong  to  the 
laboring  classes. 

The  point  which  is  overlooked  in  the  popular  view  of  this 
question,  is  that,  this  manufacturer's  tastes,  habits,  ideals, 
ambitions  being  (by  force  of  nature  and  of  education)  what 
they  are,  the  jaower  of  indulging  in  such  expenditures  is  a 
great  part  of  the  motive  which  leads  him  to  carry  on  busi- 
ness and  to  apply  j)erhaps  great  abilities,  with  untiring 
energy  and  unflinching  courage,  to  the  production  of 
wealth.  It  is,  of  course,  a  pity  that  the  man  has  not 
simpler  tastes  and  higher  ambitions  ;  but  we  have  to  take 
the  man  as  we  find  him.  Deny  him  the  ojiportunity  to 
indulge  his  own  impulses  in  the  expenditure  of  his  wealth, 
and  3'ou  destroy  or  largely  impair  the  energy  which  he 
would  otherwise  bring  to  the  conduct  of  business.  As  it  is, 
he  pays  out  several  hundred  thousand  dollars  a  year  for  labor 
and  for  materials  which  are  mainly  the  j)roduct  of  labor. 
The  fact  that  he  has  realized  twenty-five  thousand  dollars 
in  profits  is  proof  that  he  has  conducted  his  business  with 
great  energy,  skill  and  prudence.  Other  men  have  had 
control  of  equal  amounts  of  labor  and  of  capital,  and  have 
realized  no  profits. 

We  conclude,  then,  that  luxurious  ex])cnditure,  even 
though  its  objects  are  not  altogether  well  and  wisely  chosen. 


806  POLITICAL  ECONOMY. 

may  be  far  from  injuring  the  community  or  wronging  the 
laboring  class,  since  it  may  furnish  the  motive  required  for 
securing  the  most  intense  and  unremitting  application  of 
Business  Ability  to  the  work  of  production. 

On  the  other  hand,  there  is  a  disposition  very  frequently 
manifested,  to  applaud  luxurious  expenditure,  even  in  its 
most  extravagant  forms,  as  a  good  thing  in  itself,  because 
it  ''makes  trade  good,^'  ''puts  money  in  circulation," 
"  gives  employment  to  labor,"  etc.  Whenever  any  great 
exhibition  of  extravagance  is  given,  there  are  always  found 
those  who  approve  it  for  such  reasons. 

Again  we  say,  those  who  take  this  view  of  the  expendi- 
ture of  wealth,  see  only  one  side  of  the  case.  While  most 
forms  of  extreme  luxury  do,  at  the  time,  give  employment 
to  labor  and  give  "  a  fillip"  to  trade,  there  is  almost  always 
some  use  to  which  that  wealth  might  have  been  applied 
which  would  have  proved,  in  the  long  run,  much  more 
beneficial  to  the  community  at  large  and  to  the  laboring 
class  in  particular. 

Let  us  suppose  that  a  well-to-do  manufacturer,  who 
might  have  provided  a  decent,  comfortable  and  even  hand- 
some home  for  his  family,  at  a  cost  of  twenty-five  thousand 
dollars,  is  moved  by  vanity  and  love  of  display  to  put  one- 
hundred  thousand  dollars  into  his  dwelling,  with  green- 
houses and  stables.  It  is  true  that  the  additional  seventy- 
five  thousand  dollars  is  expended  for  labor,  or  for  materials 
which  are  mainly  the  product  of  labor.  It  is  true,  also, 
that,  so  long  as  the  estate  is  properly  kept-up,  a  few  addi- 
tional  servants,  gardeners  and  grooms  will  be  employed. 
But,  had  the  seventy-five  thousand  dollars  been  applied  to 
the  building  of  a  new  factory  or  to  the  improvement  of  a 
large  tract  of  agricultural  land,  an  equal  amount  of  em- 
ployment would  have  been  given  to  labor,  in  the  first  in- 
stance ;    while,  through  all  succeeding  time,  employment 


POLITICAL  ECONOMT.  307 

n'ould  be  alTorded  to  a  number  of  laborers  ten,  twenty  or 
perhaps  thirty  times  us  many  as  those  who  would  be  em- 
ployed in  keepiug-up  the  fine  house  and  grounds. 

279.  Government  Expenditures.^Another  subject,  in 
regard  to  which  public  opinion  is  very  apt  to  go  wrong,  is 
the  expenditure  of  wealth  by  government.  In  approach- 
ing this  subject,  it  needs  to  be  saitl,  in  the  first  place,  that 
there  are  many  and  large  occasions,  in  every  highly  civil- 
ized community,  for  government  to  consume  wealth  for  the 
general  welfare.  Xot  only  must  the  State  preserve  the 
public  peace  and  protect  person  and  propert}^  at  a  great  cost 
for  judges  and  jails,  for  policemen  and  soldiers,  but  there 
are  many  things  which  nearly  all  citizens  are  now  agreed 
should  be  done  by  the  State,  which  are  not  so  much  of  a 
protective,  as  of  a  productive,  character. 

The  streets  of  cities  and  the  highways  which  cross  the 
country  should,  for  the  best  effect,  be  laid  out  by  the  govern- 
ment. The  bridges,  by  which  the  public  roads  are  to  cross 
streams  and  rivers,  should  be  built  by  the  State ;  and  it  is 
by  some  made  a  question  whether  the  docks  and  wharves, 
at  which  vessels  are  to  load  and  to  unload,  should  not  be 
provided  in  the  same  Avay.  Whether  this  would  be  wise  or 
not,  it  is  certain  that  the  improvement  of  rivers  and  har- 
bors, at  enormous  cost,  the  maintenance  of  a  lighthouse 
system  and  the  construction  of  breakwaters,  are  the  proper 
work  of  government.  The  water  supply  of  cities  is  largely 
provided  by  public  authority,  out  of  public  revenues,  and 
in  some  cases,  also,  the  gas  supply.  In  nearly  all  countries, 
the  telegraphs  and  in  many  countries  the  railroads,  also, 
are  owned  and  operated  by  the  government.  In  addition 
to  these  and  similar  works  which  goveriunent  undertakes, 
the  State  has  vast  expenditures  to  make  for  elementary 
schools  and,  perhaps,  also,  higher  institutions  of  learning  ; 
for  museums  and  libraries;  for  parks  and  pleasure  grounds. 


308  POLITICAL  ECONOMY. 

The  popular  error  regarding  governmental  expenditures 
is  not  in  approving  the  consumption  of  wealth  which  is 
actually  required  for  carrying  on  useful  works ;  but  in 
looking  at  government  expenditures  as  good  in  themselveS;, 
as  "putting  money  into  circulation/'  and  as  having  a  kind 
of  virtue  to  "promote  trade  and  industry."  There  are 
found,  in  every  community,  many  persons,  otherwise  intel- 
ligent, who  are  ready  to  applaud  "  liberal "  expenditures 
M\  the  part  of  the  government,  not  as  the  necessary  price 
of  things  which  actually  require  to  be  done,  but  as  being 
beneficial  in  themselves. 

The  trouble  with  these  people,  also,  is  that  they  see  only 
one  side  of  the  matter.  They  see  that,  at  whatever  point 
government  disburses  its  revenues,  there  is  a  distinct  in- 
crease of  activity  in  production  and  in  trade.  They  fail  to 
note  the  less  intense  but  much  wider  effects  which  are  pro- 
duced upon  production  and  trade,  all  over  the  land,  by  the 
taxes  through  which  the  government  collects  those  reve- 
nues. Every  dollar  which  the  government  expends  with 
one  hand,  it  must  take  away  from  somebody  with  the  other 
hand.  Indeed,  that  the  Treasury  may  have  one  dollar  to 
spend,  it  has  to  take  from  the  people  a  dollar  and  ten  cents, 
or  a  dollar  and  twenty  cents,  because  of  the  expenses  of 
assessment,  collection,  disbursement  and  public  account- 
ing. In  order,  therefore,  to  encourage  one  person  or  set  of 
persons  by  its  expenditures,  to  the  extent  of  one  dollar, 
government  has  to  discourage  another  person  or  set  of  per- 
sons, by  its  taxes,  to  the  extent  of  a  dollar  and  ten,  or 
twenty,  cents.  This  constitutes  no  sufficient  reason  why 
government  should  not  collect  money  for  great  public 
works  which  individuals  could  not  construct  at  all,  or 
could  not  maintain  to  advantage;  but  it  does  constitute  a 
very  strong  reason   why  government  expenditures  should 


POLITI CAL  ECONGM  Y.  300 

not  be  niiide  ai\v  larger  than  is  necessary,  from  any  vague 
notion  of  eneou raging  trade  and  industry  thereby. 

280.  Over-Production.— All  the  erroneous  notions  re- 
garding the  consuuiption  of  wealth,  which  we  have  pointed 
out  in  this  chapter,  spring  largely  out  of  one  fundamental 
error,  which  is  very  widely  spread  in  the  public  mind,  and 
which  finds  its  expression  in  the  familiar  phrase,  Over-Pro- 
duction. There  is  a  very  common  tendency  to  think  of 
wealth,  after  it  has  once  been  produced,  as  somehow  getting 
in  the  way,  so  that  other  wealth  cannot  be  produced  until 
this  has  been  consumed.  The  fact  is,  physically  speaking, 
men  might  go  on  producing  wealth  to  the  end  of  time, 
and  not  consume  any  of  it,  without  encumbering  the  earth 
thereby,  or  blocking  the  way  to  further  production.  Of 
course,  morally  speaking,  men  will  produce  wealth  only  as 
they  expect  it  to  be  consumed,  or  used.  It  is  our  business, 
then,  to  inquire  whetlier  there  is  any  natural  limit  to  the 
amount  of  wealth  that  can  be  consumed.  If  there  is  not, 
then  such  a  thing  as  true  over-production  cannot  take 
place. 

Let  us  look  around.  We  see,  in  the  community  in  which 
we  live,  men  who  earn  three  hundred  dollars  a  year,  on 
which  to  support  their  families  ;  others,  four  hundred  ; 
others,  five  or  six  hundred  ;  others,  still,  one  thousand, 
two  thousand,  or  three  thousand  ;  still  others,  perhaps, 
five  thousand,  ten  thousand,  or  twenty  thousand.  Is  there 
any  family,  now  expending  three  hundred,  or  four  hundred, 
or  five  hundred  dollars,  which  could  not,  and  would  not 
gladly,  expend  twice  or  three  times  as  much,  if  they  had 
it  ?  Do  not  the  members  of  those  families  know  the  very 
things  they  would  like  to  purchase,  with  added  means: 
things,  probably,  whicli  would  be  not  only  harmless,  but 
actually,  and  perhaps  highly,  beneficial  ?  Is  there  any 
man,  now  expending  one  thousand  or  three  thousand   or 


310  POLITICAL  ECONOMY. 

five  thousand  or  ten  thousand  dollars,  who  could  not,  and 
would  not  gladly,  expend  twice  or  three  times  as  much,  if 
he  had  it  for  the  purjjose  ?  Let  the  reader  try  to  put 
himself  in  the  place  of  persons  of  these  different  classes,  in 
succession;  and  he  will  soon  be  satisfied  that  it  is  idle  to 
suppose  that  more  wealth  is  likely  to  be  produced  than 
men  would  be  ready  and  glad  to  consume.  Yet  just  this 
is  what  is  meant  by  over-production. 

But,  wliile  universal  over-production  is  thus  seen  to  be 
practically  impossible,  it  not  infrequently  happens  that 
over-production  takes  place  in  certain  lines.  This  we 
should  call  Partial  Over-Production.  For  example,  we 
might  suppose  the  production  of  woollen  goods  to  be 
enormously  increased.  Let  us  say  that  it  is  doubled  within 
a  year.  Even  so,  it  is  not  probable  that  there  would  be 
more  woollen  goods  in  existence  than  peojale  would  like  to 
use,  for  no  community  was  ever  so  well  clothed  but  that  a 
great  many  more  garments  would  be  welcome.  But,  when 
a  poor  family  have  bought  a  certain  quantity  of  woollen 
goods,  they  do  not  want  to  buy  any  more  of  these  until 
they  have  a  certain  amount  of  cotton  goods  and  of  linen 
goods.  In  the  case  supposed,  therefore,  there  would  be  a 
relative  over-production  of  woollen  goods  :  an  over-pro- 
duction, that  is,  in  comparison  with  the  amount  of  cot- 
ton and  linen  goods  produced.  Hence,  there  might  be  no 
"-'  market "  for  a  portion  of  the  stock  of  woollen  goods  ;  and, 
consequently,  some  of  the  woollen  mills  might  have  to  re- 
main idle  for  months. 

We  might  suppose,  again,  that  the  increase  of  produc- 
tion had  taken  place  through  all  the  branches  of  the  textile 
manufacture,  in  silk,  linen,  and  cotton,  as  well  as  in  woollen 
goods.  Tliere  would,  perhaps,  be  no  more  textile  fabrics 
in  existence  than  people  would  be  glad  to  use  ;  but,  after 
people  have  bought  a  certain  amount  of  textile  goods,  thej- 


POLITICAL  ECONOMY.  311 

do  not  want  to  buy  any  more  until  they  have  a  certain 
amount  of  glass  ware,  of  china,  of  wooden  ware,  of  iron 
ware,  of  carriages,  of  pictures,  etc.  There  might,  then, 
in  the  case  supposed,  be  an  over-production  of  textile  fab- 
rics, in  general:  an  over-production,  that  is,  in  comparison 
with  other  kinds  of  manufactured  goods. 

Over-production  might  even  be  extended  to  all  kinds  of 
what  we  call  manufactured  goods.  Not  that  there  would 
probably  be  more  of  manufactured  goods  than  people  would 
be  glad  to  consume,  if  they  had  them ;  but  that  there 
would  be  more  of  manufactured  goods  rhan  people  would 
be  willing  to  purchase  until  they  had  bought  more  of  agri- 
cultural produce,  or  until  they  had  built  Hiemselves  better 
houses,  or  until  they  had  been  able  to  construct  more  roads 
and  bridges. 

It  will  thus  appear  that  partial  over-production  may  be 
carried  a  great  way.  The  history  of  industry  also  shows 
that  over-production  is  very  likely  to  take  place,  in  one 
line,  or  in  several  lines,  sometimes  in  many  lines  together. 
If  the  price  of  a  certain  article,  or  of  several  articles,  has  for 
some  time  been  high,  owing  either  to  a  falling-off  from  the 
usual  supply  or  to  a  sudden  and  large  increase  of  demand, 
employers  of  labor  and  owners  of  capital  are  very  likely  to 
rush-in,  almost  tumultuously,  and  build  many  more  mills 
or  works,  in  order  to  take  advantage  of  the  high  price. 
Soon  it  is  found  that  the  "plant"  is  much  greater  than  is 
needed;  yet  each  mili-owner  for  a  while  tries  to  keep  his 
machinery  and  his  hands  employed.  The  result  is  over- 
production, followed  by  a  long  period  of  stagnation,  per- 
haps by  many  failures  in  business. 

The  reader  will  be  prepared  for  the  remark  that,  the 
further  the  division  of  labor  is  carried,  the  more  widely 
trade  is  extended,  the  greater  the  localization  and  diver- 
sification  of    industry,  the  more    numerous  become   the 


312  POLITICAL  ECONOMY. 

opportunities  for  this  misunderstanding  between  pro- 
ducers AND  CONSUMERS.  That  misunderstanding  is  the 
price  which  tlie  world  has  to  pay  for  the  great  advantages 
of  industrial  civilization.  That  price  is,  indeed,  very  high. 
It  implies,  at  times,  a  frightful  waste  of  capital  and  great 
suffering  to  the  laboring  class,  from  the  failure  of  employ- 
ment in  those  lines  where  production  has  been  over-done. 
Whether,  in  the  further  progress  of  industrial  society, 
means  will  be  found  for  preserving  all  the  advantages  re- 
sulting from  the  widest  division  of  labor  and  the  largest 
use  of  the  machinery  of  production,  and  at  the  same  time 
reducing  the  great  loss  which  men  now  have  to  suffer 
through  partial  over-production,  is  a  question  which  nc 
one  is  wise  enough  to  answer. 


THE  END. 


INDEX. 


■  The  references  are  to  numbered  sections,  not  to  pages. 


Absentee  landlords  of  Ireland, 
244. 

Abstinence,  the  creator  of  value, 
60;  interest,  the  reward  of  ab- 
stinence, 213-6. 

Accident  and  fraud:  influence 
upon  profits,  193. 

Accumulation,  how  influenced 
by  the  rate  of  interest,  219-20. 

Adams,  Henry  C,  Prof.:  Out- 
lines of  Lectures  upon  Political 
Economy,  preface,  page  vi. 

Adaptations,  Industrial,  of  dif- 
ferent peoples,  42,  149. 

Advertising  expenses,  saved  in 
Co-operation,  207. 

Agriculture,  subject  to  the  law 
of  Diminishing  Returns,  Chap. 
V;  chiefly  controlled  by  soil 
and  climate,  148.  (See  Laud 
and,  also,  Rent.) 

Agriculturists  not  prone  to  re- 
gard the  destruction  of  wealth 
as  a  good,  275. 

American  economists,  erroneous 
views  regarding  the  relation  of 
capital  to  wages.  231. 

Americans,  their  industrial  apti- 
tudes, 42,  209,  235,  262. 

Amsterdam,  bank  of,  110. 

Andrews,  E.  B.,  his  Institutes  of 
Economics:  preface,   page   vi. 

Apprenticeship,  time  saved  by 
division  of  labor,  48. 

Argyle,  Duke  of:  restrictions  on 
the  contract  for  labor,  251. 


Aristotle  on  usury,  214. 

Art:  political  economy  as  an  art 

(a     branch    of    statesmanship) 

distinguished     from    political 

economy  as  a  science:  preface, 

page  V. 
Assertion  by  the  laboring  classes 

of  their  own  interests,  essential 

to  general  well-being,  239,  247, 

255,  257. 
Australia,  gold  discoveries,  109. 
Authority,  legal,  excluded  from 

our  definition  of  value,  3,  4. 
Automatic  regulation  of  metallic 

money,    140;   political    money 

not  so  regulated,  142. 

Balance  of  trade,  124-7. 

Banks,  Chap.  XIV. 

Banking  functions,  the,  116-24; 
the  banking  agencies,  128. 

Bank-money,  113-5,  129-141;  its 
volume,  how  regulated,  141. 

Bankruptcy  laws:  in  early  times, 
very  severe,  101-2;  if  ill-con- 
.sidered,  may  increase  the  ]mo- 
portion  of  incompetent  em- 
ployers, 242. 

Barter,  the  primitive  form  of 
exchange,  86-93,  133. 

Belgium,  underfed  laborers,  40. 

Bill  brokers,  128. 

Bi-Metallism,  107-9. 

Birth-rate,    its   po.ssibilitie.s,  269; 
diminished     l)y     increase     of 
economic  desires,  270-2. 
313 


314 


INDEX. 


Blaliie,  Secretary:  report  on  the 
cotton  manufactures  of  the 
United  States,  262. 

Brabazon,  Lord:  inadequate  food 
of  French  factory-hands,  40. 

Burke,  Edmund,  quoted,  250. 

Business  Ability,  one  of  tlie  four 
agents  of  production,  22,  55, 
80,  188,  278;  its  remuneration 
(profits),  163,  189,  Chap.  XX. 

Business-paper  (see  Commercial 
paper). 

Caird,  Sir  James:  houses  in 
Scotland,  41. 

California,  gold  discoveries,  109. 

Calvin,,  John,  on  Usury,  214. 

Cancellation  of  indebtedness  by 
banksand  clearinghouses,  120. 

Capital,  one  of  the  four  agents  in 
production.  Chap.  VIII,  pars. 
22,  78,  163,  188;  Capital  in- 
vested inland,  171-2;  circulat- 
ing versus  fixed  capital,  63-4; 
remuneration  for  the  use  of 
capital  (interest).  Chap.  XXII; 
relation  of  capital  to  the 
scheme  of  co-operation,  198; 
relation  of  capital  to  wages, 
231;  the  use  of  capital  enters 
into  the  cost  of  production,  77, 
79;  how  capital  comes  into  a 
bank,  117;  accumulation  of 
capital  as  influencing  the  dis- 
tribution of  industries,  148, 150. 

Capitalist,  the  (see  Capital),  a 
claimant  in  the  distribution  of 
the  product  of  industry,  163; 
has  no  right  to  any  part  of 
Rent,  180;  his  share  of  the  pro- 
duct. Chap.  XXII;  not  to  be 
gotten  rid  of  by  co-operation, 
198. 

Cash  Principle,  in  retail  trade, 
207. 

Cattle,  as  money,  96. 

Cereals,  as  money,  96,  104. 

Chadwick,  Edwin;  the  cellar 
populations  of  English  cities. 


Cheap  money— is  inconvertible 
paper  money  cheap?  131-46, 
cheap  money  does  not  make  a 
low  rate  of  interest,  227. 

Cheerfulness,  as  contributing  to 
labor  power,  43,  263-5. 

China,  underfed  laborers,  40. 

Circulating  versus  fixed  capital 
63-4. 

City  Real  Estate,  differs  in  an 
important  particular  from 
agricultural  land,  187. 

Civilization  tends  to  diminish  the 
sum  of  values,  60;  how  civi- 
lization is  made  permanent, 
272. 

Clearing  house,  the  banker's 
bank,  121. 

Climate:  influence  on  the  distri- 
bution of  industries,  148. 

Clothing,  its  relation  to  subsist- 
ence, 62,  263. 

Coin  basis  of  bank  mone}'  (see 
Reserve). 

Coincidence,  double,  of  wants 
and  of  possessions,  87,  133. 

Comfort,  ideas  of,  developed  in 
the  progress  of  society,  9,  59, 
270-2. 

Commerce:  old-time  theory  that 
it  could  be  beneficial  to  but 
one  party,  11. 

Commercial  paper,  its  discount, 
221. 

Common  Ownership  of  Laud  (see 
Nationalization,  etc.). 

Competing  countries:  influence 
upon  each  other  in  the  matter 
of  wages,  and  of  the  standard 
of  living.  Chap.  XXVI. 

Competition,  49;  what  is  involv- 
ed in  perfect  competition,  162, 
234-5;  effects  of  imperfect 
competition.  Chap.  XXIV; 
what  can  be  done  to  remedy 
the  effects  of  imperfect  com- 
petition. Chaps.  XXV  and 
XXVI. 

Concentration  of  manufacturing 
industries,  tendency  to,  150-1. 


INDEX. 


316 


Congress  of  the  United  States, 
its  untituess  for  tariff  legisla- 
tion, 155. 

Consumers  of  agricultural  pro- 
duce have  no  right  to  any  part 
of  Rent,  178. 

Consumers  and  producers,  pos- 
sible misunderstandings  be- 
tween, 280. 

Consumption  of  wealth,  59, Chap. 
XXVII;  consumption,  how 
influenced  by  batl  money,  146; 
mistaken  notions  regarding 
consumption,  Chap.  XXVIII. 

Consumptive  versus  productive 
co-operation,  206;  advantages 
of,  207;  practical  experience, 
208-9. 

Contract  for  labor:  interference 
by  law  with,  75,  249,  251-2. 

Contract  for  labor:  what  deter- 
mines the  price  at  which  this 
is  made,  i.e.,  wages?  231. 

Convertibility  of  paper  money 
(see  Redeemahility). 

Convict  labor,  260. 

Co-operation,  Chap.  XXI;  an 
effort  to  get  rid  of  the  em- 
ployer, 198;  erroneous  concep- 
tions of  many  economists,  198; 
anticipated  benelits,  199-201; 
practical  difficulties,  202-4; 
consumptive  versus  productive 
co-operation,  206;  special  ad- 
vantages of  consumptive  co- 
operation, 207;  practical  ex- 
perience, 208-9. 

Corn-rents,  104. 

Corn-laws  (English),  241. 

Cost  of  production,  its  relation  to 
normal  value,  Chap.  IX  ;  rent 
does  not  enter  into  the  cost  of 
production,  164,  175;  prolits  do 
not  enter  into  tlie  cost  of  pro- 
duction, 194;  wages  and  inter- 
est alone  constitute  the  cost  of 
production,  165;  relation  of 
cost  of  production  to  tbe  dis- 
tribution of  wealth,  165,  188, 
210,  215-7;  low  cost  of  produc- 


Cost  of  production — continved. 
tiou     compatible    with     high 
wages,  261-5. 

Credit,  commercial,  largely  man- 
aged by  banks,  116. 

Credit  sales,  their  great  impor- 
tance in  modern  industry, 
100-2;  make  necessar}'  a  stand- 
ard for  Deferred  Payments, 
103;  the  Multiple  or  Tabular 
Standard,  106. 

Creditor  class,  100-2. 

Custom,  effect  on  price,  75. 

Dangerous  employments,  how 
compensated,  232. 

Debtors,  laws   regarding,  100-2. 

Debtor  class,  thei-r  demand  for 
paper-money  issues,  138. 

Debts,  Bad,  loss  by,  207. 

Debts,  scaling  down,  138. 

Decency,  Ideas  of.  developed  in 
the  progress  of  society,  9,  59, 
270-2;  power  to  check  popula- 
tion, 270-2;  desire  for  decencies 
promote  efficiency  in  labor, 
263-5. 

Deferred  Payments.  Standard 
for,  103-5;  political  money  as 
the  standard,  134-42  (see  Tabu- 
lar Standard). 

Degradation  of  the  laboring  class, 
through  unequal  competition, 
236-8,  263. 

Demand  and  supply,  15,  215, 
232;  intellectual  and  moral 
elements  of,  233. 

Demand,  Causes  which  affect, 
69. 

Denominator  of  Values,  89. 

Deposit  and  di.scount,  the  great 
banking  function.  116-7. 

Depreciation,  not  a  necessary  re 
suit  of  the  inconvertibility  of 
paper  money,  133,  143. 

Desires,  economic :  their  devel- 
opment in  the  progress  of 
mankind,  9,  59;  their  intluence 
in  retarding  the  growth  of 
population,  270-2. 


316 


INDEX. 


Destruction  of  wealth  :  popular 
notion  that  it  stimulates  pro- 
duction, 275-7. 

Deterioration,  liability  to,  as  af- 
fecting price,  74. 

Diet,  divorsifiecl,  taste  for,  as  an- 
tagonizing the  procreative 
force,  271. 

Diminishing  Returns  in  Agricul- 
ture, Chap.  V. 

Disadvantage,  production  at : 
preface,  page  v.  Chapter  X, 
pars.  160,  188,  215-18;  iutiuence 
on  the  distribution  of  wealth, 
165,  188,  194,  210,  215-18,  230. 

Discount  and  deposit,  the  great 
banking  function.  116-7. 

Distribution,  the  Problem  of. 
Chap.  XVII;  the  several  shares 
in  distribution.  Chaps.  XVII 
and  XVIII. 

Distribution,  geographical,  of 
money,  hovr  effected,  140. 

Division  of  Labor  (see,  also.  Terri- 
torial Division  of  Labor)  :  how 
it  arises,  47;  how  it  becomes  a 
source  of  productive  power, 
48-54;  evil  possibilities  attend- 
ant upon,  280. 

East  India,  inefficiency  of  its  la- 
boring population,  35,  262. 

Economic  Association,  American: 
preface,  page  vi,  also  par.  202. 

Economics  (see  Political  Econ- 
omy). 

Economics,  Quarterly  Journal  of: 
preface,  page  vi. 

Eclucation  of  the  working  classes, 
through  their  own  efforts  to  im- 
prove their  condition,  201,  248. 

Education,  popular,  effects  upon 
industrial  aptitudes,  42,  232, 235. 

Efficiency  of  the  individual  labor- 
er, dependent  upon  several 
causes,  36-46,  263;  relation  to 
wages,  230-1,  263-5;  efficiency 
of  bodies  of  labor,  promoted  by 
the  organization  of  industry, 
47-54. 


Emigration  of  capital,  224;  of 
labor,  235-7,  239- 

Employer,  the:  his  industrial 
function.  55,  197,  203;  his  re- 
muneration, 163,189  (see  Chaps. 
XX  and  XXI. 

Employer,  the  least  competent: 
the  productiveness  of  labor,  at 
his  hands,  determines  wages, 
85,  190,  192. 

Employers,  incompetent,  how 
their  control  of  business  affects 
the  distribution  of  wealth,  195; 
causes  wbich  tend  to  increase 
the  proportion  of  such  employ- 
ers, 241-2. 

Em  ployed  Laborer  (see  Laborer). 

Encouragement  of  Manufactures, 
the,  153. 

England:  insufficient  food  and 
shelter  of  agricultural  laborers, 
39-40;  contrasted  with  India 
and  Ru.ssia  as  to  the  efficiency 
of  its  laboring  population,  35, 
262-5;  banking  agencies.  111; 
aristocratic  holding  of  the  soil, 
187;  co-operative  enterprises, 
202,  208;  usury  laws.  214;  gov- 
ernment securities,  222;  mortal- 
ity in  certain  avocations,  232; 
defective  competition,  236, 
237  ;  corn-laws,  241 ;  remedial 
labor  legislation, 246-50;  strikes, 
257. 

English  economists:  their  erro- 
neous views  regarding  the  rela- 
tion of  wages  to  the  product  of 
industry,  231:  they  oppose  Fac- 
tory Acts,  251. 

Environment,  Industrial,  influ- 
ence of,  52. 

Esprit  de  Corps  in  industry,  51. 

Exchangeability,  the  test  of  value, 
3-8. 

Exchange,  the  old-time  theory 
that  it  could  be  beneficial  but 
to  one  party,  11. 

Exchange,  as  a  department  of  po- 
litical economy.  Part  I. 

Exchanges,  foreign,  124^7. 


INDEX. 


317 


Factorj'  laws,  249,  251-3. 

Fashion,  Changes  of,  as  affecting 
demand,  69. 

Fawcett,  H. :  insufficient  food  of 
West  of  England  laborers,  40. 

Fiat  money  (see  Inconvertible 
Paper  Money). 

Financiering,  as  a  banking  func- 
tion, 110. 

Fiscal  motives  to  exce.ssive  issues 
of  paper  monej",  136. 

Fixed  I'.'*.  Circulating  Capital, 63-4. 

Food  (see,  also,  Subsistence):  its 
relation  to  labor-power  37-40, 
237-8,  263;  the  primary  form 
of  capital,  62;  its  relation  to 
population,  269. 

Force,  Productive,  cannot  be  lost 
out  of  nature,  but  may  be  lost 
out  of  man's  reach,  25. 

Forced  circulation,  generally  a 
characteristic  of  government 
paper  money,  133. 

Form  value,  20. 

France:  underfed  factory  hands, 
40;  bimetallic  system,  108-9; 
rapid  recovery  from  effects  of 
German  war,  268;  popular  ten- 
ure of  the  laud,  187;  co-opera- 
tive enterprises,  202. 

Fraud  and  accident :  influence  on 
Profits,  193. 

Free  Trade  vs.  Protection,  Chap. 
XVI;  the  Pauper  Labor  argu- 
ment against  free  trade,  Chap. 
XXVI. 

Freedom,  real  vs.  nominal,  252. 

Frugalit3%  awakened  by  owner- 
ship of  land,  45;  the  creator  of 
capital,  60;  encouraged  by  Co- 
operation, 200. 

Gains  which  no  man  loses,  238, 
263. 

Gains,  Unearned,  do  little  good 
to  any,  104,  144-6. 

Geometrical  progression  in  popu- 
lation, 269. 

George,  Henry,  his  "Progress 
and  Poverty,"  182. 


Germany:  has  to  protect  itself 
against  England,  while  Russia 
protects  itself  against  Ger- 
many, 262. 

Gilman,  N.  P.,  Profit  Sharinjr. 
205.  ^ 

Girdlestone,  Canon:  diet  of  the 
laborers  of  Devonshire,  40. 

Glut  (see  Over-production). 

Gold  (see  Precious  Metals.  See, 
also,  for  its  relations  to  silver, 
Bi-Metallism). 

Government,  as  producer  and 
consumer,  279;  restraining 
greed  and  imposing  conditions 
upon  industry,  251-2  (see  The 
State). 

Government  expenditure,  how 
far  to  be  encouraged,  279. 

Grain,  as  mone}-,  96. 

Gratuity,  its  relation  to  value,  60. 

Greed,  often  antagonistic  to  the 
enliehtened  pursuit  of  wealth, 
11,  251-2. 

Greenbacks,  so  called,  of  the 
United  States,  137,  143. 

Ground-rents,  159,  163,  187. 

Habit,  influence  on  price,  76. 

Hazardous  risks  of  capital,  how 
compensated,  221-3. 

Health  is  not  wealth,  6-8;  effect 
upon  health  of  certain  avoca- 
tions, 232. 

Hebrews,  jmcient,  usury  forbid- 
den, 214. 

Hireling,  the,  lack  of  interest  in 
production  and  in  care  of 
wealth,  46  (see  Co-operation). 

Holland,  underfed  laborers,  40. 

Honesty:  its  relation  to  punctu- 
ality, 123. 

Hopefulness  in  labor,  as  an  ele- 
ment of  productive  power,  43, 
263-5. 

Huskisson,  William:  repeal  of 
the  English  laws  against  Com- 
binations, 247. 

Immobiliiy  of  Capital  and  Labor 
(see  Emigration,  etc.). 


318 


INDEX. 


Improvements  made  upon  the 
Land;  the  returns  to  thera 
should  be  distinguished  from 
Rent,  171-2. 

Inconvertible  paper  money, 
Chap.  XV;  its  multiplication 
does  not  reduce  the  rate  of  in- 
terest, 227;  increases  the  pro- 
portion of  incompetent  em- 
ployers, 242. 

Increment,  the  Unearned,  of 
land  (see  Rent). 

Indebtedness,  Cancellation  of, 
120. 

India:  the  efficiency  of  its  labor- 
ing population  contrasted  with 
that  of  England,  35;  underfed 
laborers,  40. 

Inertia,  Mental,  influence  on 
price,  76;  on  rate  of  interest, 
224. 

Inflation  (money),  Chap.  XV; 
effects  of  Inflation,  142-6. 

Inglis,  H.:  the  city  houses  of  Ire- 
laud,  41;  industry  of  peasant 
proprietors,  45. 

Institutions,  essential  to  civiliza- 
tion, 272. 

Insurance  of  the  principal,  an 
important  element  of  interest, 
221-3,  228. 

Intellectual  elements  of  supply 
and  demand,  233. 

Intelligence  isuot  vk^ealth,  6-8;  a 
source  of  productive  power, 42. 

Interest,  as  a  share  of  the  pro- 
duct of  industry,  163,  Chap. 
XXII;  what  determines  the 
rate  of  interest,  215-6;  justifi- 
cation of  interest,  213--4;  in- 
terest is  not  paid,  generally 
speaking,  for  the  use  of  money, 
but  of  capital,  214,  227. 

Interest  contrasted  with  Rent, 
225;  rate  of  interest  tends  to 
decline,  226. 

International  Distribution  of 
Money,  140. 

International  Division  of  Labor 
(see  Territorial,  etc.). 


Invention  facilitated  by  the  di- 
vision of  labor,  48. 

Investment  of  Capital,  68-4;  as 
affecting  the  supply  of  com- 
modities, 73. 

Ireland,  peasants'  houses,  41; 
rents  in,  244-5. 

Irish,  their  industrial  aptitudes, 
45,  244-5. 

Jevons,  "W.    S.,  Prof,    quoted, 

252. 
Joint  stock  banks,  1 28. 

Knies,  Prof.:  his  classification 
of  values,  17. 

Labor:  how  related  to  value,  14; 
employed  in  agriculture  sub- 
ject to  the  condition  of  Dimin- 
ishing Returns,  26-31;  not  so 
when  employed  in  mechanical 
industries,  32-3;  one  of  the 
four  agents  of  production,  22, 
188;  varying  efficiency  of 
labor,  35-46;  division  of,  47- 
54;  relation  of  labor  to  value, 
67;  to  cost  of  production,  77-8, 
165. 

Laborer,  the,  as  laying  claim  to 
a  share  of  the  product  of 
industry,  163;  the  residual 
claimant  upon  the  product  of 
industry,  Chap.  XXIV. 

Laborers,  their  mistaken  notions 
regarding  Profits,  195;  their 
eHorts  to  improve  their  own 
condition,  Chap.  XXV. 

Laborers,  agricultural,  have  no 
right  to  any  part  of  Rent,  179. 

Land,  otie  of  the  four  agents  of 
production,  22,  79,  188,  Chap. 
IV;  land  a  fixed  quantity,  24; 
liable  to  grave  abuse,  187;  its 
capability  of  increased  produc- 
tion. Chap.  V;  remuneration 
for  the  use  of  land  (see  Rent); 
the  Tenure  of  Laud,  Chap. 
XIX  (see,  also.  Nationaliza- 
tion of  the  Land). 


mDBX. 


3id 


Landlord,  the,  as  laying  claim  to 
a  share  of  the  product  of  indus- 
try, 163;  Chaps.  XVIII  and 
XIX. 

Latiu  union,  so  called,  its  mone- 
tary league,  109. 

Laws,  regulating  the  contract  for 
labor,  75,  349,  251-2. 

Legal  Tender,  133. 

Lincoln,  President,  quoted,  203. 

Loans  (see  Interest  and  Usury 
Laws),  Interest,  in  the  econom- 
ic sense,  is  received  b}'  capi- 
tal, whether  actually  loaned  or 
not,  212;  interest  on  extra-haz- 
ardous loans,  222. 

Loss,  which  no  man  gains,  238, 
263. 

Losses,  undeserved,  work  great 
injury  to  industry,  104,  144. 

Locock,  ]\Ir.,  quoted,  40. 

"Log-rolling"  in  legislation,  155. 

Lombard  Street  Banks,  111. 

London  Banks,  111;  London  the 
centre  of  exchange-operations 
for  the  world,  127. 

Luxurious  consumption:  its 
economic  character,  278. 

Luxury,  ideas  of:  their  iuHuence 
in  retarding  the  increase  of 
population,  270-2. 

Machinery:  great  differences 
among  different  peoples  in 
the  capacity  for  using  it,  42, 
149;  its  introduction  renders 
necessary  the  employer,  54; 
tends  to  set  producers  and  con- 
sumers apart,  280. 

Mahon,  Lord,  quoted,  35. 

Maine,  Sir  H.  S.:  use  of  "living 
money,"  96. 

Malthus,  T.  R. :  the  law  of  popu- 
lation, 269. 

Manufactures:  not  subject  to  the 
condition  of  diminishing  re- 
turns, 32-3;  how  far  affected 
by  soil,  climate,  etc.,  148-50. 

Margin  of  Production:  as  to  land, 
168;  as  to  Business  Ability,195. 


Market  value,  its  relations  to  nor- 
mal value,  68. 
3Iarriage:    discouraged    by    eco- 
nomic desires,  270-2. 
Marshall,      Alfred,     and     Mary 
Paley,  the  "Economics  of  In- 
dustry," preface,  page  vi. 
Martiueau,       Harriet:       Female 
chastity  in  England,  how  af- 
fected by  the  degradation  of 
labor,  237. 

Massachusetts,  its  colonial  paper 
money,  138. 

^lasters'hip  in  production,  54  (see 
chap,  on  Profits;  also,  chap, 
on  Co-operation). 

Materials,  the  third  form  of  capi- 
tal. 61;  waste  of,  an  important 
element  in  production,  42,  191, 
200,  231;  materials  vs.  pro- 
ducts, in  tariff"  legislation,  155; 
value  of,  as  affecting  the  suc- 
cess of  co-operative  enter- 
prises, 199,  204. 

Measure  of  Value,  so  called  (see 
Denominator  of  Values). 

Mechanical  industry,  not  subject 
to  the  condition  of  diminish- 
ing returns,  32-3. 

Medium  of  exchange,  money 
serves  as  the.  Chapter  XI; 
how  about  paper  money?  133. 

Metals,  as  money,  98. 

Metals,  the  Precious,  as  money, 
99;  the  irregularity  of  their 
production,  105,  107  (see,  also, 
Bi-Metallism  and  Tabular 
Standard). 

Middlemen  in  Ireland,  244. 

Mill,  John  Stuart,  his  Political 
Economj'.  Preface,  page  vi; 
distinction  between  fixed  and 
circulating  capital,  63. 

Mining  industry,  nature  fixes  the 
limits  within  which  they  may 
be  pursued,  148. 

Mobility  of  capital  and  labor 
(see  Emigration,  etc.). 

Money,  defined,  92;  disctissed.  in 
its  various  forms,  Chapters  XI- 


S'-JO 


nwEX. 


Money —  Continued. 
XV;  banking  economizes  the 
use  of  money,  118;  interest 
paid,  in  general,  not  for  the 
use  of  money,  but  of  other 
forms  of  capital,  214;  to  in- 
crease the  amount  of  money  is 
not  to  lower  the  rate  of  inter- 
est, 227  (see,  also,  Bank  Money, 
Inconvertible  Paper  Money, 
Political  Money, Bi-Metal!ism). 

Monometallism  (see  Bi-Metal- 
lism). 

Monopoly:  land  a  monopoly,  24; 
not  so,  capital,  225-6. 

Moral  elements  of  supply  and 
demand,  233. 

Mosaical  code  prohibits  usury, 
214. 

Multiple  standard  for  Deferred 
Payments  (see  Tabular  Stand- 
ard). 

"National  Banks  of  the  United 
States,  128. 

Nationalization  of  the  laud, 182-7. 

Neighborhood  Industries,  151. 

Neison, Doctor,  varying  mortality 
of  the  several  trades  and  pro- 
fessions, 232. 

New  countries,  40,  235 ;  their 
characteristic  industries,  150. 

New  England,  its  paper  money, 
138. 

No-Profits  Employers,  190,  230. 

No-Rent  Lands,  167,  173,  175. 

Nominal  versus  real  cost  of  labor, 
261-5. 

Normal  value  :  its  relation  to 
market  value,  68,  260;  deter- 
mined by  cost  of  production  at 
the  greatest  disadvantage,  81, 
160. 

Occupation,  change  of,  as  a  means 
of  relieving  the  labor  market, 
235-6. 

Occupations  of  the  people,  how 
affected  by  soil,  climate,  etc., 
148-50;  wages  in  different  occu- 
pations, 232. 


Opinion,    public :    influence    on 

wages,  233. 
Organization   of   industry,  Chap. 

VII;  affecting  price.  72. 
Over- Production:  how   far  it  is 

possible,  280. 
Over-population:    industrial   and 

social  effects  of,  239,  245,  269. 

Pakenham,  Mr.,  quoted,  40. 

Paper  money  (see  Bank  money 
and  Inconverliblepaper  money). 

Par  of  exchange,  125. 

Particular  Wages,  232. 

Pauperism,  237. 

Pauper  Lalaor  argument  for  Pro- 
tection, 156,  Chap.  XXVI. 

Place  value,  19. 

Plant,  so  called,  its  existence  as 
affecting  price,  73. 

Political  economy,  the  Science  of 
Wealth,  1. 

Political  money.  Chap.  XV  (see 
Inconvertible  Paper  Money). 

Politics  and  economics,  235-6. 

Population:  effect  of  the  increase 
of  population  in  driving  culti- 
vation down  to  inferior  soils, 
169  (see  Subsistence);  effects  of 
over  population,  269. 

Possessions,  double  coincidence 
of  wants  and,  87. 

Precious  Metals  (see  Metals,  Pre- 
cious). 

Premium  on  Gold,  its  cause  and 
effects,  142-4. 

Price,  its  relation  to  value,  95; 
price,  the  agent  in  the  inter- 
national distribution  of  money, 
140  ;  price,  as  affecting  distri- 
bution, 160  ;  relation  of  rent  to 
the  price  of  agricultural  prod- 
uce,l75;  relation  of  profits  to  the 
price  of  manufactured  goods, 
194;  the  price  to  be  paid  forthe 
use  of  capital,  215,  218,  221. 

Price  current,  need  of,  89,  91. 

Procreative  Force,  the:  capabili- 
tiesof,  269;  antagonized  by  eco- 
nomic desires,  270-2. 


INDEX. 


321 


Produce,  its  price  not  afifected  by 
Rent  or  Protits.  175,  194. 

Product  of  ludustry,  divided  into 
shares,  163,  165,  188-92,  228. 

Production  of  wealth,  defined,  16; 
modes  of  production,  17-20; 
agents  of  production,  22;  rela 
tion  of  cost  of  production  to 
value.  Chap.  IX;  production 
at  the  greatest  disadvantage, 
Chap.  X^iei,  188,  215-8. 

Producers  and  consumers,  mis- 
understandings between  them, 
280. 

Productive  co-operation  (see  Co- 
operation). 

Production,  cost  of,  of  what  made 
up,  165,  188. 

Productiveness,  of  Labor,  the 
Source  of  Wages,  230;  how 
that  productiveness  may  be  in- 
creased, 231  (see  also  Chapters 
VI  and  VII). 

Profit-Sharing,  205. 

Profits,  the  employer's  share  of 
the  product  of  industry.  Chap. 
XX;  how  profits  are  gained, 
189-1'Jl;  the  Law  of,  192;  prof- 
its and  rent  are  species  of  the 
.same  genus,  194-5;  profits  do 
not  form  a  part  of  the  price  of 
manufactured  products,  194; 
are  nut  obtained  from  deduction 
from  wages,  194;  economic  jus 
tification,  196;  in  Co-operation, 
laborers  aim  to  secure  the  em 
ployer's  profits,  198. 

Protection  versus  free  trade, 
Chap.  XVr,  protection  lends 
to  increa.se  the  proportion  of  in- 
competerit  employers,  242;  the 
"pauper-labor"  argument  for 
protection,  Chap.  XXVI. 

"  Protest"  of  commercial  paper, 
122. 

Punctuality  in  payments,  pro- 
moted by  banking,  122. 

Real  versus  nominal  cost  of  la- 
bor, 261-3. 


Redeemability  of  paper  money, 
what  it  implies,  114-5,  118, 
129,  141. 

Reflux,  the  (Bank  Money),  129, 
141. 

Rent,  a  share  in  the  distribution 
of  the  product  of  industry,  163; 
the  law  of  rent,  its  source  and 
its  measure,  166-70,  174;  to  be 
distinguished  from  the  return 
to  capital  invested  in  imjirove- 
ments  of  land,  171-2;  No-RenI 
lauds,  173;  rent  does  not  form 
a  part  of  the  price  of  agricul- 
tural produce,  175;  is  not  ob 
tained  by  deduction  from  wages, 
176;  does  rent  belong  in  equity 
to  the  community?  177-83  (see, 
also.  Nationalization  of  the 
Land);  analogy  between  Rent 
and  Profits,  194;  contrasts  be- 
tween Rent  and  Interest,  225-6; 
rents,  how  affected  by  imperfect 
competition,  243-5. 

Reproduction,  of  wealth,  cost  of, 
67. 

Reserve,  specie,  of  bank  money, 
114-5,  141. 

Residual  Share  of  the  Product  of 
Industry  =  Wages,  228. 

Retail  trade,  the  friction  of,  75-6. 

Revolutionary  paper  money,U.  S. 
and  France,  137. 

Russia,  the  efticiency  of  its  labor- 
ing population  contrasted  with 
that  of  England,  262;  its  Gov- 
ernment Securities,  221. 

Safe  deposit,  as  a  banking  func- 
tion, 111. 

Sanitary  conditions,  as  affecting 
the  eificiency  of  labor,  41. 

Saving  (see  Abstinence). 

Savings  Banks,  250. 

Science,  distinction  between  po- 
litical economy  as  a  science  and 
as  an  art,  preface,  page  v. 

Scotch,  once  an  idle  people,  45. 

Scotland,  inadequate  shelter  of 
the  laboring  population,  41. 


322 


INDEX. 


Sentiments,  personal,  excluded 
from  detinition  of  value,  3-4; 
sentiment  as  modifying  the  iu- 
tiueuce  of  competition,  233, 244. 

Services  of  the  possessors  of 
health,  skill  and  intelligence 
may  be  the  subjects  of  <?x- 
change,  though  those  qualities 
cannot  be,  6,  7. 

Shelter,  its  relation  to  subsistence, 
41,  62,  269. 

Sheep  as  Money,  96. 

Silver  (see  Precious  Metals;  see, 
also,  for  its  relation  to  gold,  Bi- 
Metallism). 

Skill  is  not  wealth,  though  it 
may  become  the  means  of 
acquiring  wealth,  6-8. 

Slave  labor,  the  cause  of  its  in- 
etficiency,  44. 

Smith,  Adam:  his  Wealth  of 
Nations,  effect  upon  the  rela- 
tions of  States,  11;  unprofit- 
ableness of  slave  labor,  43; 
division  of  labor,  48. 

Socialist  writers,  their  disparag- 
ing view  of  the  employer's 
function,  197. 

Soil,  the,  a  fund  for  the  endow- 
ment of  the  human  race,  24-5; 
influence  upon  the  distribution 
of  industries,  148;  subject  to 
abuse,  25,  187. 

Soldiers,  their  services  economic 
in  England,  non-economic  in 
Germany,  4. 

Speculation,  aggravated  by  bad 
money,  144-6. 

Specie  Reserve  of  Banks,  114-5. 

Standard  of  Deferred  Payments, 
usually  called  standard  of 
value,  103-5;  how  about  paper 
money?  134-42;  how  about  bi- 
metallic money?  107-9  (see, 
also,  Tabular  Standard). 

State,  the,  its  obligation  to  con- 
trol the  issue  of  bank  money, 
115;  its  right  to  Rent,  181;  its 
intervention  in  the  contract  for 
labor,  76,  249,  251-3. 


Stock,  influence  of  a  stock  of  a 
commodity  upon  its  price,  70 

Storage,  necessity  of,  as  affecting 
price,  74. 

Strength  is  "not  wealth,  6-8. 

Strikes,  247;  justification  of, 
256-7;  co-operation  would 
abolish  strikes,  200. 

Subsistence,  one  form  of  capital, 
61;  its  relation  to  wages,  232, 
238;  its  relation  to  population, 
269. 

Substitution  of  one  commodity 
for  another  in  use,  as  affecting 
price,  71. 

Suffrage,  political,  its  influence 
upon  the  distribution  of 
wealth,  235-6,  250. 

Sumner,  W.  G.,  Prof.,  his  Prob- 
lems of  political  economy; 
preface,  page  vi. 

Supply  and  demand,  15,  215, 
232;  intellectual  and  moral 
elements  of,  333. 

Supply,  causes  which  affect, 
69-76;  supply  of  money,  129, 
134-43. 

Surplus,  the,  above  cost  of  pro- 
duction, of  what  made  up, 
and  how  distributed.  Chap.  X, 
pars.  164-5,  188-192,  194,  228. 

Sympathy  with  labor  (see 
"Opinion,  Public). 

Tabular  Standard  for  Deferred 
Payments,  106. 

Tariff,  Protective  (see  Protec- 
tion). 

Taxation  (see  Government  Ex- 
penditure). 

Tenure  of  the  Soil,  Chap.  XIX. 

Tender,  Legal  (see  Legal  Ten- 
der). 

Territorial  division  of  labor, 
147-51, 

Three  Cornered  Exchange,  137. 

Time  value,  18. 

Tobacco,  as  money,  93. 

Tools,  the  second  form  of  capital, 
61. 


INDEX. 


323 


Trades  imions,  their  formation 
in  Eugliind,  247;  their  eco- 
nomic iatluence,  253-4. 

Transferability,  essential  to 
value  6. 

Transportation,  its  relation  to 
value,  19;  to  prices,  140;  to 
rent,  170;  as  atlectiug  the  dis 
tribution  of  industries,  151. 

Truck,  242. 

Turkey,  its  government  securi- 
ties, 221. 

Unearned  increment  of  laud  (see 
Increment,  etc.). 

United  States:  the  laboring  pop- 
ulation well  fed,  37, 40;  capable 
of  using  delicate  and  intricate 
machinery,  42,  149;  Banks  and 
Bank  money,  112-6,  128-9;  its 
government  paper  money,  137, 
143  (see,  also,  Greenbacks); 
agriculture,  148,  171-2;  co- 
operative enterprises.  202,  209; 
competition  in  the  U.  S.  before 
the  War  of  Secession,  235; 
trades  unions,  255. 

Usury  and  usury  laws,  213-4, 
219-20. 

Utilit}'-,  how  related  to  value; 
useful,  in  economics,  does  not 
mean  benelicial,  12. 

Value:  related  to  wealth  as  attri- 
bute to  substance,  3,  21;  de- 
fined, 3;  relation  to  utility, 
12-13;  to  labor,  14;  is  governed 
by  the  relation  of  demand  and 
supply,  15;  hoTV  cost  of  pro- 
duction stands  related  to  value; 
Chap.  IX;  value  of  money, 
Chap.  XV. 


Virginia,  the  Colony  of,  tobacco 
as  money,  93. 

Wage  fund  theory,  231. 

Wages:  a  share  in  the  product  of 
industry,  163;  are  not  dimin- 
ished by  the  sums  received  hy 
the  landlord  class  as  rent,  176; 
or  by  the  sums  received  by  the 
employing  class  as  profits,  194; 
wages  constitute  the  residual 
share  of  the  product,  Chap. 
XXIII;  effect  upon  wages  of 
Imperfect  Competition,  236- 
242;  what  may  be  done  to 
remedy  the  evil,  Chaps.  XXV- 
XXVI. 

Wants  and  Possessions,  double 
coincidence  required  in  Barter, 
87. 

War,  paper  money  in,  137. 

Waste  of  materials  (avoidable), 
an  important  element  in  pro- 
duction. 42,  191,  200,  231. 

Waste  of  soil,  25,  187. 

Water  privileges,  rent  of,  159, 
163. 

Water  powers,  effect  upon  the 
growth  of  manufactures,  148. 

Wealth:  the  subject-matter  of 
political  economy,  1;  relation 
to  value,  2,  21  (see,  also, 
throughout.  Capital) 

Webster,  Daniel,  quoted,  19, 
146. 

"Wildcat  "  Banking,  115. 

Women:  the  causes  which  deter 
mine  their  wages,  233. 

Young.  Arthur:  ownership  awa 
kens  industry,  45. 


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